Tax professionals can work through your return with you or handle it all themselves.
As the clock ticks closer to April 15, you have a decision to make: Should you file your taxes on your own or enlist the help of a pro?
If you're traditionally employed with no major outside sources of income and you haven't experienced a major life event, you may be able to file your return on your own using tax filing software, which can handle standard deductions and basic credits.
"If your tax return is simple, just W-2 income, no dependents and no major deductions, filing on your own is fine," said Mark Kohler, a CPA and senior partner at KKOS Lawyers, a tax and legal planning firm. "If you have minimal investments and no business or rental properties, there's no need to overcomplicate things."
But there are a lot of situations that can complicate your tax situation, including side hustles, investments and marriage. Taking the DIY approach could cause you to make errors or miss out on valuable tax deductions and credits.
If you're not sure whether you need to hire a tax professional, keep reading. We'll cover the types of tax professionals that are out there and situations where you should probably hire a pro. We'll also give you a few tips for finding the right tax professional.
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When should you consider hiring a tax professional?
Not everyone needs to hire a tax professional to prepare their return. If your tax situation is fairly simple — say you worked a single W-2 job and you didn't have any major life changes or out-of-the-ordinary expenses — you may be fine filing on your own using tax filing software or IRS Free File. But there are many circumstances where professional assistance is probably worth the cost.
You have a side hustle or run a business
If your main source of income is a W-2 job, filing tax returns can be pretty simple because your employer withholds taxes for you. But things get more complicated when you earn money through a side hustle, gig work or your own business.
John Adams, a CPA and owner of Bridgewater Tax and Financial Consulting, said many people aren't aware of the tax implications of earning income through gig work or a side business, like paying self-employment taxes and submitting quarterly taxes. One client, for example, recently got hit with a nasty tax bill on earnings from their Etsy store.
"I've had clients who have made maybe a little more than they thought they would on their side hustle, and then they saw their tax bill, and they're like, 'I already spent that money,'" Adams said.
You may also qualify to deduct some significant expenses if you do gig work or have self-employment income. But keeping track of everything can be confusing, especially if you're making a living from several different gig platforms, like driving for Uber and Lyft, plus making GrubHub and Instacart deliveries.
"What that means is they have multiple 1099-miscellaneous forms from coming in, and they have multiple different types of business expenses that they may need help categorizing or tracking to make sure they're not paying more tax than they need to," said Jassen Bowman, an IRS enrolled agent.
You went through a major life event
Any time you experience a major life event — such as marriage, divorce, the birth of a child, a home purchase or your child starts college — your tax situation changes. In this case, getting professional tax assistance is worth it.
Often, a big life event will affect your tax bill for subsequent years, according to Adams. For example, if you bought a house with a 30-year fixed-rate mortgage, a professional can help you decide whether itemizing for the mortgage interest deduction is worth it. Or if you welcomed a new child, you'll want to make sure you understand all the deductions and tax credits available to parents.
You have complicated investments
If your primary investments are your 401(k) or your individual retirement account, then you may not need to pay for professional tax advice. Your gains aren't taxable as long as you keep the money in the account. But many other types of investments can complicate your tax situation.
"If you're doing any kind of day trading, options trading, Forex trading, or if they're doing a lot of crypto trading, which is a big one we're seeing right now, that's a really good time to go to a tax professional," Bowman said.
Likewise, if you bought or sold real estate or if you own rental properties, professional guidance is a must. For instance, if you and your spouse sold your home for a profit, you could qualify to exclude up to $500,000 of capital gains from your taxable income. If you're a landlord, you can typically deduct many of your expenses.
A professional tax adviser can help you navigate the complexities of tax law in these situations.
You incurred a significant expense
Sometimes there's an upside to a major expense: You may be able to use it to lower your tax bill. But it's not always obvious to the average person that the expense could help them get a deduction or credit.
Say a stray baseball shatters your window. You replace the window, along with a few others.
"If you replace them with energy-efficient windows, there could be a tax credit in there," Bowman said. "People may not think of those things because all they remember is the baseball broke their window."
Or if you purchased an RV or boat that doesn't qualify for a tax deduction, you can deduct the sales taxes you paid up to $10,000, provided that you itemize your return. A tax professional can help you decide if the deduction tips the scale in favor of itemizing vs. taking the standard deduction.
Adams said that he sometimes works with clients who had an unexpected hospital stay or major dental work. You're allowed to deduct unreimbursed medical expenses above 7.5% of your adjusted gross income if you itemize. But itemizing may not occur to you if you're in the habit of taking the standard deduction.
"You may have that one year where you qualify for a big deduction, but you don't even think about it," Adams said.
Which tax professional should I use?
There are four basic types of tax professionals. Who you should hire will likely depend on how complicated your tax situation is.
Certified public accountant: A CPA is someone who has completed at least 150 college credit hours, met their state's licensing requirements and passed the Uniform Certified Public Accountant Examination, which is administered by the American Institute of Certified Public Accountants. In addition to preparing tax returns, CPAs can represent you before the IRS for audits or any issue involving federal taxes.
Enrolled agent: Enrolled agents are professionals who can prepare tax returns and represent you before the IRS. EAs must pass a three-part IRS-administered exam, though some former IRS employees can have this requirement waived. Enrolled agents also undergo a background check and are required to complete regular continuing education.
Tax attorney: A tax attorney is an attorney who specializes in tax law. They can prepare tax returns and represent you before the IRS. However, most people don't need to hire a tax attorney for relatively straightforward matters like filing a tax return.
Uncredentialed preparer: This is a broad term for anyone who has a Preparer Tax Identification Number. Anyone who obtains a PTIN can call themself a tax preparer, regardless of education or training, and no exam is required. If a tax preparer passes the IRS Annual Filing Season Program, they can represent you on limited matters before the IRS. A tax preparer who hasn't done so can't represent you before the IRS in any circumstance.
Tips for working with a tax pro
If you decide to hire a tax professional this season, follow these tips.
Get help when you start a side hustle
This advice may not help you this tax season, but if you're self-employed, don't wait until you're preparing your return to get professional input. Meet with a tax pro as soon as you start earning self-employment income to make sure you're withholding the proper amount, as well as taking advantage of any deductions.
Vet the professional credentials
Unless you have a simple tax situation, which means only W-2 income and no major investments or life events, you're probably going to want to choose a CPA, enrolled agent or tax attorney so they can represent you before the IRS if necessary. You can vet the person's credentials by searching their name on this IRS directory.
Be sure not to wait until April
The tax profession is facing a huge shortage of qualified people, according to Bowman, which means you can't wait until the last minute to get professional help.
"In many mom-and-pop shops and many of the big firms as well, they're putting cutoff dates, like if you're not in with us by April 1, or even March 15, we're just not going to be able to do your tax return for this year," he said.
If you miss the window to hire someone, you could still file for an extension, which gives you until Oct. 15 to file. That doesn't change the deadline for paying your taxes, though, so you should still make your best estimate of what you owe and pay what you can by April 15.
Check in with a pro from time to time
You may not need to pay for tax advice every year, but it might be helpful to check in with a professional to ensure you're doing everything by the book and not missing out on any substantial tax savings.
"Even if you DIY your taxes, I recommend checking in with a pro every few years to make sure you're not leaving money on the table," Kohler said.
