If you're ready to prepare your taxes, you may be wondering if you need to hire professional help (and who to hire if you do!), what documentation you need to get together ahead of time and if you might even be able to prepare your own taxes. Read on for answers to these questions and for help knowing whether it makes sense for you to do your own taxes, how to get ready, and who to hire if your situation requires professional help.
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Deciding whether you can prepare your own taxes depends on factors like your comfort level with tax laws, the complexity of your financial situation, and the resources available to you. Here are some considerations to help you decide:
Complexity of Your Tax Situation: If your financial situation is relatively simple, with income mainly from wages or salaries, and you claim standard deductions, you may find it easier to prepare your taxes yourself. However, if you have multiple sources of income, investments, rental properties, self-employment income, or significant deductions and credits OR if you owe more than $10,000 in taxes, your taxes may be more complex, and you might benefit from professional assistance.
Knowledge of Tax Laws: Consider your understanding of tax laws and regulations. Tax laws can be complex and subject to frequent changes. If you're comfortable navigating tax forms, understanding deductions and credits, and keeping up with tax law updates, you may be able to prepare your own taxes.
Time and Resources: Preparing your own taxes can be time-consuming, especially if your financial situation is more complicated. Evaluate whether you have the time and resources to dedicate to researching tax laws, gathering necessary documents, and completing tax forms accurately and efficiently. If you have a busy schedule or prefer to focus on other priorities, hiring a professional may be a better option.
Risk Tolerance: Consider your tolerance for errors and potential audit risk. While preparing your own taxes can save money on professional fees, mistakes or omissions could lead to penalties, interest, or an audit by tax authorities. If you're concerned about making errors or are unsure about certain tax issues, consulting with a tax professional may provide peace of mind.
Ultimately, the decision to prepare your own taxes depends on how you gauge your individual circumstances, level of comfort with tax laws, and willingness to invest time and effort in the process. If you're not comfortable preparing your own taxes, you should consult with a tax professional who can give you guidance tailored to your specific situation.
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Having the correct documentation can prevent errors on your taxes and can also help lower the amount of taxes you'll owe. So here are some basic documents you will want to get together before preparing your taxes on your own or with a tax professional:
Though not required, having a copy of your last tax return on hand can also be very helpful.
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If you decide you'll need to hire a tax professional, certified Public Accountants (CPAs) and tax attorneys are both professionals who specialize in tax matters. However, they have different qualifications, roles, and areas of expertise. If you're planning to hire a CPA or tax attorney, but aren't exactly sure which you need, here is a basic comparison of the two:
| CPAs | Tax Attorneys | |
| Qualifications | must pass CPA exam, ethics requirements by state | lawyers with a law degree, specialize in tax law, must pass state bar exam |
| Roles | focused on tax compliance; offer accounting services, including tax preparation, financial planning, audit representation, and consulting | provide legal advice on tax matters, tax planning, tax controversies, IRS audits, tax litigation, estate planning, business transactions, and other legal issues involving taxation; may represent clients in court |
| Expertise | have a deep understanding of accounting principles and tax regulations; some ability to negotiate with IRS and tax authorities | have a comprehensive understanding of tax laws, regulations, and court precedents; handle complex legal issues, interpret tax statutes, provide legal opinions, negotiate with tax authorities |
| Client Representation | represent clients before the IRS and other tax authorities in matters related to tax returns they prepared, limited ability to represent clients in court | represent clients in all stages of tax disputes, including IRS audits, appeals, and litigation; provide legal advocacy in complex tax matters |
In summary, while both CPAs and tax attorneys possess valuable skills and knowledge in tax matters, their qualifications, roles, and areas of expertise differ. CPAs primarily focus on accounting and tax compliance, while tax attorneys provide legal advice, representation, and advocacy in tax-related legal matters.
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What if you are having problems with the IRS, and need help? While a CPA is ideal for the typical taxpayer, finding a professional that has experience in dealing with the IRS is important if you are having tax problems.
If the IRS has started collections proceedings against you, it's likely that a CPA or tax attorney will not be knowledgeable enough to help you out of your situation. You need someone that has experience specifically dealing with the IRS when the IRS is acting in a collections capacity. Tax preparation is very different than tax collections, and each aspect of tax code has complicated regulations. CPAs are experts in tax preparation, but cannot necessarily help you if you have problems with the IRS due to failure to file in previous years, or a failure to pay a tax debt owed to the IRS.
>>Click Here for 6 Questions to Ask a Tax Attorney Before Hiring Them
If you need tax preparation help for back taxes, a tax firm like Top Tax Defenders can help you bring your filings up to date and work with the IRS to find a solution to your problem.
Top Tax Defenders can help you get out of tax debt, whether that means paying your debt in monthly installments, settling your debt for less, or pausing collection actions during periods when you cannot afford to pay. Top Tax Defenders has the experience and expertise you're looking for in a tax firm:
Our team of experts is ready to offer you a free consultation based on your personal tax situation.
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Professional tax preparation is the process of having a qualified tax professional, such as a CPA, enrolled agent, or tax attorney, prepare and file your tax returns on your behalf. They ensure accuracy, identify deductions and credits you may have missed, and reduce the risk of errors that could trigger an audit or result in penalties.
It depends on your situation. If your income comes mainly from wages and you take the standard deduction, you may be able to file on your own. If you have multiple income sources, investments, rental properties, self-employment income, significant deductions, or owe more than $10,000, professional help is worth the cost. Errors in complex returns can lead to audits, penalties, and interest.
You will need your Social Security number and identification, bank account information, income statements such as W-2s and 1099s, Schedule K-1 forms if applicable, and records supporting any deductions, including mortgage interest, student loan interest, charitable donations over $500, tuition expenses, and estimated tax payments. Having a copy of your prior year return on hand is also helpful.
A CPA focuses on accounting and tax compliance. They prepare returns, provide financial planning, and can represent you in IRS matters related to returns they prepared. A tax attorney specializes in tax law and is best for complex legal disputes, IRS litigation, criminal tax matters, and estate planning. Communications with a tax attorney are also protected by attorney-client privilege, which those with a CPA are not.
Hire a tax attorney when your situation involves legal disputes, IRS collections proceedings, criminal tax investigations, complex business transactions, or matters that may lead to court. A CPA is well-suited for standard tax preparation and compliance, but when the IRS is acting in an enforcement or collections capacity, you need someone with specific experience in that area of tax law.
Mistakes on a tax return can result in penalties, interest on unpaid amounts, or an IRS audit. Minor errors, such as math mistakes, are often corrected automatically by the IRS. More significant errors, such as underreporting income or claiming unsupported deductions, can trigger notices or collections activity. An amended return can correct many errors, but acting quickly reduces the risk of compounding penalties.
Yes. A tax firm experienced in IRS collections can help you file delinquent returns, bring your account current, and negotiate a resolution for any resulting tax debt, whether through an installment agreement, Offer in Compromise, or Currently Not Collectible status. Filing delinquent returns voluntarily is treated more favorably by the IRS than waiting for enforcement action.
Tax preparation is the process of filing accurate, compliant tax returns. Tax resolution deals with resolving existing tax debt, penalties, liens, levies, and IRS enforcement actions. A standard CPA handles preparation well but may lack the specific IRS collections experience needed for resolution. If you have both unfiled returns and outstanding debt, you need a firm that handles both.
The IRS generally requires you to file the last six years of delinquent returns to be considered in compliance. However, the IRS can pursue unfiled returns indefinitely. The statute of limitations on assessment only begins running once a return is filed. Filing all delinquent returns as soon as possible stops penalties from accumulating and opens the door to resolution options.
The most common mistakes include math errors, mismatched Social Security numbers, unreported income, missing signatures, claiming deductions without documentation, incorrect filing status, and failing to report foreign accounts or assets. Each can trigger an IRS notice or audit. Professional preparation significantly reduces the likelihood of these errors, particularly on complex returns.
For straightforward returns, a CPA or enrolled agent is typically sufficient. For complex returns involving business income, investments, or significant assets, look for a CPA with relevant industry experience. If you are facing IRS collections, audits, liens, or levies, choose a firm that specializes in tax resolution and has direct experience negotiating with the IRS, not just preparing returns.
It reduces your risk significantly. A professional ensures your return is accurate, your deductions are properly documented, and your reported income matches third-party documents like W-2s and 1099s. Consistency and completeness are the two factors most likely to keep a return from being flagged. If you are audited despite professional preparation, your preparer can also represent you in the audit process.
