When is it Time to Hire a Professional to do Your Taxes?

in Tax Deductions


Like it or not, the American tax system is extremely complex. The tax code alone runs to many thousands of pages and the additional regulations run to many more thousands of pages. The result is one of the most complicated tax systems in the world and many people spend their entire professional careers learning how to handle different aspects of the tax code and selling this expertise to people that have neither the time nor the interest to become experts themselves. Of course anyone is allowed to fill out their own tax returns, and if the person’s tax situation is very simple – people that qualify to use the 1040EZ and choose to do so – there is generally no harm in this.

However, the more complicated the tax situation becomes; the more important it is to at least consider hiring a professional. Many people end up getting themselves into trouble with the Internal Revenue Service (IRS) simply because they decide to file their own returns without understanding how everything actually works. For example, many deductions have relatively self-explanatory names – like “business expenses” – but these terms have very strict and well defined meanings in respect to taxes which may not include everything that common sense says is a “business expense.” Further, many deductions have very specific limitation on what can or cannot be claimed, and while an expert may know and understand what these limits are, a layman may not. In either case, if a person claims a deduction or credit that they are not entitled to, they may face penalties and other punitive measures.

Another reason that an expert may be useful is because the tax code and various limits and conditions change each year. For example, just because a person qualified for a particular deduction in one year does not mean they qualify for the same deduction the next year. Similarly, there are also usually a number of one time, or temporary, deductions or credits that only apply once. There are so many changes that many major tax forms change each year, so the IRS usually only issues the tax forms for a particular year a few months in advance of the April 15 due date. Keeping track of all of these changes and modified limits can be very time consuming, but most experts do this as a matter of course, so it is no problem for them.

Finally there is simply the matter of maximizing the tax benefits: maximizing the amount of a refund or minimizing the amount owed to the IRS. The whole notion of deductions and tax credits is very complicated. There are so many options available and each of them has very strict guidelines that have to be met in order to claim them. This is true even for basic claims that people think they understand – like dependents – even if in reality they do not understand specifically what the IRS means by these terms. The result is that in many cases a tax professional can not only help the taxpayer avoid getting themselves in trouble, but can also help them get a better return than they would have been able to come up with by themselves.

Have a tax question? Ask one of our tax professionals.