Few people enjoy doing paperwork, least of all their taxes.
And yet doing your taxes is a must every year. If only they got easier with time! But since our income, filing status, and life circumstances are all apt to change, our tax filings rarely remain the same.
That’s not even taking the tax code into account. Lawmakers are constantly making changes to it—take the most recent Tax Cut and Jobs Act of 2017 (TCJA) for example. This makes understanding tax law akin to hitting a moving target. Forget any details and you just might miss out on some tax-saving credits or deductions.
So what’s a person to do?
Use a tax advisor.
Why hire a tax advisor?
Since tax season only comes once a year, maybe you’re skeptical about whether it’s actually necessary to hire a professional for help.
But having one in your corner can make all the difference. That’s because a tax advisor can:
- Set you up for success. Major life events, like getting married or having a baby, will affect the amount of money you can withhold from your paycheck for tax purposes. An advisor can provide insight on your tax planning options and what your best move may be depending on your unique circumstances.
- Save you both time and money. Without a tax background, how will you know all of the deductions and credits you qualify for? There’s a lot of room for error when filing a tax return, but this can easily be avoided by consulting a trained tax professional.
- Give you confidence about doing your taxes right. No one should have any doubts about whether their taxes are filed correctly or not, especially since incorrect filings may result in penalties. Tax advisors can give you peace of mind that no tax preparation software can. After all, they’re real people who can answer questions about your specific situation—not even Google can do that.
If you’re still not sure whether getting a tax professional’s help is right for you, here are some signs that suggest you should.
1. You’re not sure if you should itemize or not
Thanks to the latest tax reform legislation, many itemized deductions have been eliminated or modified, including home mortgage interest, medical expenses, and charitable contributions. What does that mean for you? You may be better off electing the new standard deduction, which nearly doubled for both single taxpayers and married couples filing jointly.
2. You paid the alternative minimum tax (AMT) in the past
In previous years, as many as 5 million tax filers paid the alternative minimum tax (AMT). Now, it’s been all but eliminated. This is because the new tax laws increased the exemption threshold to adjust for inflation, meaning the AMT will apply to fewer taxpayers moving forward. If there’s any uncertainty on your end, a tax advisor can help you determine whether or not you’re exempt, and if you’re due any credits for past overpayments.
3. You’ve recently retired
Think tax filing might be simpler as a recent retiree? Unfortunately, that’s not quite the case. If you have any income outside of Social Security benefits, like regular income, retirement withdrawals, and pension payments, you’ll need to file a tax return. Enlisting an advisor’s guidance with tax preparation will help you figure this out while also getting you on track to make the most of your retirement finances.
4. You pay taxes in multiple states
If you pay taxes in more than one state, you may be surprised to find that the new tax legislation has affected states differently. For instance, in South Carolina, lawmakers voted to align the state’s tax code with the federal tax law in response to the changes made by the new tax law. This, in short, should result in many South Carolinians paying less income taxes, although those making over $150,000 a year will likely see the opposite.
It’s not just Federal changes affecting state tax codes, though. North Carolina officials also revamped the state’s tax code in recent years so that the advantages of contributing to the state’s 529 college savings program were eliminated.
Feeling overwhelmed? Keeping track of the various tax nuances between different states is nothing short of difficult. A tax professional can help guide you through these complexities when filing your tax returns.
Additional Considerations
When it comes to getting professional tax help, you have a variety of options. Should you hire a certified public account (CPA) or an enrolled agent (EA)? Or should you use an online program like TurboTax?
To those working outside of finance, the difference between a CPA and EA may not be so obvious. Though both are licensed financial professionals, one may be better for your tax needs.
Broadly speaking, CPAs are licensed state by state to assist clients with a variety of accounting services. They often focus on businesses for proper accounting practices and auditing. EAs, on the other hand, are federally licensed tax specialists who work specifically with tax returns and can represent taxpayers before the IRS. This ultimately makes them the better choice for helping with tax preparation as not all CPAs specialize in taxation.
This is relevant because with the new tax withholding tables come changes to your paychecks and withholdings, all of which a professional can help identify for you.
As for online tax preparation software—they aren’t terrible, but they tend to be best suited for those with simpler financial situations. If you’re in a more complex situation, then consulting a tax professional is strongly recommended for making tax season more bearable.
Conclusion
Some people hesitate to enlist the services of a tax professional because they’re worried about the cost. And, if you’re used to taking care of it on your own, maybe doing your own tax return again doesn’t seem so bad.
However, the latest changes in tax reform legislation, as well as any major life changes you’ve recently gone through, can make filing your taxes a bigger headache than usual.
That’s where tax advisors come in. With a financial expert on your side, you’ll be able to better navigate this tax season’s murky waters and set yourself up for success next year.
Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.
Your Financial Mom blog posts are not meant to be legal, accounting or other professional service advice. Content represents the opinion of the author only. Pathfinder Planning LLC is not responsible for the accuracy or validity of content contained in third-party comments.