The snow is still thawing, the temps are barely above freezing, and the groundhog saw its shadow. But just because spring feels like it’s months away, it’ll be here before you know it. And that means one thing: tax season.
As a child of a CPA, tax time has always made me nervous. But since becoming a freelance writer, it’s also complicated my life. Suddenly, weekends were devoted to finding my receipts, tracking down random expenses, and making sure I could prove every deduction.
The process got somewhat better when I hired an accountant, but it’s still no picnic. However, not everyone needs an accountant – and some are better off doing their taxes by themselves. So how do you know if you need an accountant? Read below to learn more.
When You Need an Accountant
Before you go hire an accountant – which can cost at least $150 an hour – you should figure out if you actually need one. Here are some scenarios when you likely need an accountant:
When you’re a business owner
Running your own business is a challenge – even in the best of times. But filing your taxes as a business owner? That’s like the ninth circle of hell.
And while it may seem like a waste of money, a qualified accountant can help you find deductions that you may not know about. When I was a freelance writer, I had my mom file my taxes. But quickly, we both realized that her corporate tax background didn’t apply to my solopreneur business, so I hired an accountant focused on freelancers.
When you need tax planning
A qualified accountant doesn’t just file your taxes for this year. They can also provide more guidance on overall tax planning to help you save money in the future. This might include deciding what kind of retirement plan to open, how to minimize taxes, and potential future considerations. Accountants can even provide more specific tax guidance, like how to structure your business.
When you have a side hustle
Even if you’re not a full-time business owner, you might still benefit from an accountant if you’re making money on the side. Accountants can help you determine if you’re eligible for any deductions.
When you want extra insurance
When you use an accountant, they can help sign the tax return with you. That means that if you get audited, they can go with you and try to resolve the situation. However, this may depend on the type of tax preparer you hire (i.e. CPA vs. EA). For some people, that peace of mind is worth the cost of hiring an accountant.
When you have investment income
If you are receiving money from investments, either from day trading, options trading, or simply taking Required Minimum Distributions (RMDs), then you may benefit from having an accountant handle your taxes.
When you’re divorced
Paying for child support or alimony can complicate things, especially when it comes to filing your taxes. And when you have children involved in a divorce, there may be rules on when you can claim that child as a dependent.
When You Don’t Need an Accountant
If you’ve never used an accountant, they can cost you hundreds of dollars. So if you don’t need one, it could be a huge cost savings.
When you take the standard deduction
When you file your taxes, you have to take either the standard deduction or itemize your deductions.
Ever since they raised the standard deduction, fewer and fewer people take the itemized deduction, so it is less relevant. Taking the standard deduction simplifies your tax situation so you may not need it.
If you only have a W2
If your only tax document comes from traditional employment, then there may be no need to hire an accountant.
A W2 is one of the most basic tax documents you can have, and it’s very simple to input into tax software.
When you qualify for free filing
If you earn below $89,000, then you may qualify for free tax filing. To be eligible for this service, you also need to have a relatively simple tax situation.
This is another good benchmark to see if you actually need an accountant or not. Using these free tax filing programs is fairly straightforward, and they have customer service representatives you can call just in case.
How to File Your Taxes, Whether or Not You Use an Accountant
Keep everything organized
Whether or not you’re using an accountant, the most important part of filing your taxes is keeping all of your documents and receipts organized.
I use a couple of different strategies. First, in my budgeting software, I create a special category for deductible items. When it’s time to file my taxes, I can click on that category and see all of my deductible expenses.
Also, I use email labels to classify my deductible expenses. When I receive an order confirmation or a receipt, I make sure it’s labeled as “taxes.”
Scan your receipts
If you receive a receipt in person, I always recommend scanning it sooner rather than later. Receipts often disintegrate over time so it’s best to do this ASAP.
I like to scan my receipts in the Adobe cloud, where I organize them based on the tax year. This also ensures that they’ll stay safe in case I need to reference them in the future.
Bottom Line
Even if your financial situation is relatively simple, there’s nothing wrong with hiring an accountant if you simply don’t have the time or energy to file your taxes. After all, would you feel bad for outsourcing your landscaping or snow removal if you were too busy to do it? You wouldn’t, right?
If you’re on the cusp of needing an accountant, then it may be worth at least talking to an accountant. They may offer a short or free consultation that can help you decide if you truly need to hire one.
Plus, hiring an accountant once doesn’t mean you have to do it every year. If your taxes are simpler one year and more complicated the next year, then you can make your decision based on what’s happening at the time.
In general, whether or not you need an account is a function of how complicated your financial life is. The less complicated it is, the lower your need for an accountant.
Zina Kumok has been a freelance personal finance writer for about 10 years and joined C.H. Douglas & Gray Wealth Management as Associate Advisor and Marketing Manager in April. She has written for outlets such as Forbes, Business Insider, and US News, as well brands like TurboTax, Mint, and Prudential. She is also launching a speaking and workshop business focusing on financial literacy – ranging from high school students to adults.
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