Q: The past few years have been a bit stressful for taxes. I've tried doing them completely by myself, and I don't think I got back as much as I should have. I think I may want to get help from a tax accountant this year. Would you recommend that?
A: It has been about 30 years since there was a major reform of federal taxes, and what happens over time is that taxes tend to get increasingly complicated, as each year brings a few more tweaks. The IRS advises that e-filing can catch many common errors automatically, but this won't necessarily help you make all the right decisions about your taxes. A tax accountant or other professional tax preparer is a possible solution.
Here are some things to consider in deciding if this makes sense for you:
- Just how complicated is your particular tax situation? If your investments are limited to plain vanilla savings accounts, tax prep can be a simple matter, but if you have more exotic investments like real estate holdings or options, it might be more important to get a professional involved. This can also be the case if you have several deductions.
- What would you have to pay for professional tax preparation? Be sure to shop around to get competing quotes on this.
- How valuable is your time? It's not just the result of the tax return that's at stake -- there is also the amount of time you have to invest to do the taxes yourself. You might realize that the money you are saving is not worth the time you are putting in.
- What is your comfort level with tax rules? This is not just a question of making sure you don't overpay. It is also important to avoid making mistakes that could result in you incurring fines and penalties.
By the way, don't necessarily take not getting much money back as a sign that you are not preparing your taxes correctly. It may simply be a sign that your withholding is set at an efficient level. In fact, many people feel getting a refund is a bad sign, because it means they had too much withheld and could have been earning money on that interest in the meantime. Of course, given the low level of savings and money market rates, this is less of a big deal than it used to be.
There are firms that offer to give your returns a free look to see if they could do better for you. It might make sense for you to start with one of those reviews, to see if paying for tax prep is likely to be cost-efficient in your case.
Got a question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.