When to Hire Someone to Do Your Taxes


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Tax WeekTax WeekWith tax-filing season upon us, Two Cents is donning the green eyeshades and focusing on stories which will help you navigate tax preparation and make the most out of your return.

For many people, 2020 is not a typical tax year—whether due to your contribution to the highest rate of unemployment in recent memory or having to take on gig work for the first time, a change in your finances may have you thinking about hiring a tax professional for the first time. Indeed, there are definitely situations in which it’s worth the expense and convenience to hire someone to prepare your taxes.

These situations typically include:

  • You’re a freelancer or you have multiple income streams.
  • You started/own your own business, or sold a business.
  • You do business in a foreign country.
  • You got married or divorced.
  • You inherited money.
  • You’re retired.
  • You take care of an elderly relative.
  • You want year-round tax advice.
  • You have significant investment income/losses.
  • You buy health insurance through a health exchange.
  • You’re rich (which means you’re single and earning more than $250,000 or married and earning more than $300,000 jointly, per Marketwatch).

“Usually when I get new clients it’s because of a ‘life-changing’ event,” says CPA John Gregory, in an interview with Marketwatch. “As life goes on, things become more complicated.”

This is especially the case when you’re suddenly dealing with deductions, credits, and penalties you may not be familiar with. If you are a stable W-2 earner and expect to take the standard deduction, you don’t need to hire a tax professional to process your tax return (and most software will let you do simple returns for free). On the other hand, other life events—like moving to a different state or starting a self-owned business—involve particularities that aren’t easy to work through on your own, even when using tax software (or at the very least, without paying a premium for the deluxe edition).

That said, there are no hard rules about this—if none of these scenarios describe you but you simply feel more comfortable with a professional handling your returns, that’s okay, too. At minimum, you can get some general advice and avoid the aggravation of DIY errors in your tax form. The trick is to find a professional without getting swindled.

How to choose a tax preparer

As with anything money-related, there are a lot of tax scammers out there. Word of mouth recommendations are okay, but you’ll want to do your own research to find a good preparer.

Hire a preparer with a Preparer Tax Identification Number

If you are planning to hire a professional, you’ll want to make sure he or she specializes in tax preparation. A certified financial planner doesn’t necessarily understand the minutiae of the tax code, so look for a certified public accountant or a tax professional who is registered with the IRS. That means they will have a preparer tax identification number (PTIN), which they’re required to include on your return (along with their signature)—an important step to prevent scams.

Watch the price

Don’t hire a preparer who receives a percentage of your refund—you want to look for someone charging a flat fee per form or a fixed hourly rate. “Also, ask if your tax preparer is compensated or receives incentive pay based on the number of returns he prepares because pay based on volume conflicts with taking the time needed to be thorough,” writes CBS News.

According to a biennial survey by the National Society of Accountants from 2018, here’s what you can expect to pay for various levels of service:

  • 1040 without itemized deductions and a state return: $176
  • Itemized 1040 with Schedule A and a state tax return: $273
  • Itemized 1040 with Schedule C business income and a state return: $457

As for tax apps, “a person filing online with software, on the other hand, could pay up to $130 with one of the major tax-preparation companies, including the fees for one state return,” for an itemized 1040 and Schedule A, according to the Washington Post.

And if your returns are more complicated, you can expect to pay the following additional costs on average, per the NSA:

  • Schedule D, for gains and losses: $124
  • Schedule E, for rental income: $132
  • Schedule F, for farm income: $180
  • Form 940, for federal unemployment: $69
  • Form 8965, for health coverage exemptions: $53
  • Form 1120S, for s corporation: $809
  • Form 706, for estates: $1,563

Get your papers in order

One benefit of hiring someone to do your taxes is that you save some time. But you still need to collect and organize all of the paperwork, receipts, and other information to give to your preparer so that they can file your taxes effectively.

Finally, remember that it’s possible a preparer will make a mistake, and hiring someone doesn’t mean you won’t be audited. So double check the work that is done for you before you sign off on your return.

This story was originally published in 2019 and updated on Feb. 16, 2021 with updated context and to align with current Lifehacker style.