Should we hire an accountant to do our taxes?
Beth takes on a tricky new money question—and offers expert advice on how to resolve it and how to talk it over in constructive ways.
For the eight years we’ve been married, my wife and I have used TurboTax to file our taxes. This year, I’d like to hire an accountant. With the new tax rules coming into effect, plus the fact that we bought a house this year and my wife started a business selling homemade soaps on Etsy, I feel overwhelmed. In the past, doing our taxes has taken over our lives for about a week, and this year will be worse. My wife says an accountant is a waste of money, and that we can handle it. How can I persuade her to hand over our shoebox of receipts and paystubs to someone who does this for a living?
—Stan, Columbus, Ohio
I don’t know a single person who enjoys preparing their taxes—and I’m the kind of person who actually asks people about things like that. Aside from the tediousness of the task itself, many people fear making a mistake and getting that dreaded audit notice from the IRS. (Overall, only about one in 140 individual taxpayers gets an audit notice, so don’t feel too nervous.) Having an accountant can feel like hiring your own personal finance bodyguard. The truth is a bit more complicated. Hiring a tax preparer can be smart, depending on your circumstances, but you and your wife should make this decision with your eyes open. Here are five things to consider when deciding whether to hire someone to do your taxes.
- Is your tax status “it’s complicated”? People with simple income streams and real estate transactions can probably handle their own taxes. But if you own a business, rental properties, or significant investments, a good accountant can help you lower your taxes and plan for the future—such as saving for your kids’ education, minimizing capital gains taxes, or deducting depreciation costs on a house you rent. What’s more, if you and your spouse make more than $200,000 a year, you’re at increased risk of a tax audit—IRS stats show that above that income threshold, the chance of being audited is significantly higher. An accountant may give you an extra layer of security if the taxman cometh.
- Weigh the costs. Using an online service such as TurboTax, H&R Block, or TaxAct to prepare your federal and state returns this year will probably run you between around $60 and $80, if you don’t have to report business income (and for some taxpayers with lower incomes, these services are free). Since it sounds like your wife has a side hustle, this likely requires a Schedule C or Schedule C-EZ, which could push the cost higher, but still not above $140. If you hire someone else to do the job, you’ll pay more. A recent survey by the National Society of Accountants found that tax preparers charged an average of $176 for federal and state returns without itemized deductions, $273 for customers who did itemize, and $457 for those with business income. But if that accountant helps you find deductions you’d otherwise have missed, it will be money well spent.
- How much is your time worth? People who hire an accountant often tell me they’re surprised at how much work they still have to do. You probably have receipts, cancelled checks, and income forms floating around in folders, drawers, and yes, a shoebox. You are the one who has to organize, categorize, and add everything up before sending them to the accountant, who will use them to prepare your return. That’s still a lot of time. On the other hand, if you have a question about a particular deduction, you could spend hours reading publications on the IRS website trying to find the answer, while an accountant should have the answers at their fingertips.
- The buck still stops with you. Having an accountant doesn’t mean you aren’t liable if you’re audited. The IRS holds you responsible for any mistakes on the return, even if your accountant made them. So double-check those forms before you sign them. However, a good accountant should pay any penalties or interest that result from an error he/she made, and help you to navigate the audit process. Which leads me to my next point…
- Choose your accountant wisely. Lots of people hang up a shingle around tax time. If you’re shelling out money for this, get a true expert: a certified CPA, preferably one who comes highly recommended by a friend or colleague. Most states have websites that allow you to check the status of an accountant’s license. The American Institute of CPAs recommends asking whether an accountant charges by the hour or has a flat fee. It says that red flags include someone who refuses to provide this information or who offers to prepare your return for a percentage of the refund. Other important questions to ask include whether the accountant has experience with people in your particular tax situation (e.g., you live overseas or run your own business), and whether he/she will be preparing your return personally or will have someone else in the office do it. If it’s the latter, will the CPA look over that person’s work?
If you and your wife are still at odds over whether to hire accountant, I recommend this: Ask her to try it out for one year as an experiment. (And if you really can only get her to agree to a one-year trial, consider doing this next year, for your 2018 tax return, which is when the complex new tax law will be in effect—most provisions actually don’t kick in until then.) Maybe your CPA will suggest deductions and tax strategies that make the few hundred dollars you spend seem well worth it. Or maybe you’ll decide that you didn’t receive much more for your money than you get from online tax software. Now, if your wife’s soapy sideline grows into a multinational empire, you might want to reconsider hiring an accountant—or twenty.