For the overwhelming majority of US taxpayers, the answer is no -- you do not need a CPA to do your taxes. If you only have W2 wage income and a handful of deductions, you can file your return using one of many online providers. In many cases, there is no cost for you to file your return electronically with these providers. Technology has made this task easy and fairly quick. You can even do it all on your smartphone or tablet over a cup of coffee. Boom. Done.
However, if you have more than one source of income other than W2 wages, you should definitely engage the services of a CPA. The tax code is complicated, and it becomes even more so as your sources of income diversify. Here are 8 situations in which the cost of a CPA's services is well worth it, and will almost certainly save you much more than mere time and money.
You Own Rental Property
The deductions available to rental property owners are numerous. The most overlooked deduction for rental property owners is depreciation. In simple terms, you can write-off the cost of your rental property over 27.5 years. You’ll want a CPA to calculate this for you, as it is not a simple calculation. For example, a portion of the property cost is attributable to the land, which does not depreciate. Additionally, you may have improvement costs that may be depreciated. Let a CPA do the heavy lifting here and find other deductions you may be missing.
You Have Income From an Investment Bank
Each year, they send you a combined Form 1099 to report your interest, dividends and capital gains. These forms may appear straight-forward, but you may be missing out on things such as the foreign tax credit. Furthermore, cost basis information on the 1099B may not be accurate. We have seen some cost basis reported as zero, which means all the sale proceeds for that security would be subject to capital gain (as opposed to only the portion in excess of the actual cost basis). You’ll save money, and a lot of headaches, by having a CPA handle the reporting of these transactions for you.
You Own a Sole Proprietorship or Single-member LLC
The tax rules for businesses are complicated. A CPA will find deductions you’re potentially missing. A CPA will also identify transactions that should not be run through your business. You may also need accounting guidance and bookkeeping help. A CPA will make sure your financials are in good order, and that numbers are defendable in the event of an audit. Just as importantly, a CPA can calculate the estimated taxes you should be paying to IRS each quarter. This will save you thousands in penalties and interest.
You Have Income From a Partnership or S Corporation
Every year you receive a K1, and you hope you’re reporting it all correctly. Time to hire a CPA. K1s are complicated and need to be reviewed and reported by a CPA with expertise with these forms. Aside from reporting several items of income and expense, K1s also contain important information regarding your tax basis. This information must be accumulated and rolled-forward each year. It becomes especially important when you sell or transfer your interest in a partnership or S Corporation. Selling your interest is especially complex, and it becomes radically expensive if your tax basis has not been meticulously tracked each year. Aside from that, the K1 may contain guidance from the CPA who prepared the K1 which gives instructions on the proper tax treatment for certain items on the form. Understanding and interpreting the legalese is best left to an expert CPA.
You Have Royalty Income From Oil and Gas
There are probably deductions you’re missing as an owner of working or royalty interests in oil and gas properties. Depletion, which is like depreciation for rental property owners, is one such deduction. You may also claim other deductions related to your royalty income. Some of these deductions are provided on the 1099MISC you receive from the producer, while others are not reported on that form and may not be as obvious. A CPA will identify these for you and ensure you get every deduction legally allowed.
You Inherited an IRA
Not all inheritances come tax-free. The inherited IRA is likely subject to income taxes. A CPA can help advise you on ways to mitigate or defer these taxes so you can keep more of the inheritance out of Uncle Sam’s coffers. This often requires making decisions and taking certain actions sooner rather than later to ensure you optimize the distributions for tax purposes. This is yet another complex area of the tax code where you’re better off with the help of a CPA.
You Have Income From a Foreign Country
US citizens and permanent residents are required to report their worldwide income on their tax return each year. If you worked outside the US for a foreign employer and lived in a foreign country while performing the work, there are significant tax breaks available to you. Whether you worked for a foreign company as an employee or as an independent contractor, a CPA will be able to prepare your return to maximize your tax savings. If you end up owing tax on some portion of your foreign income, the foreign tax credit will come in handy as well. The rules for foreign income are complicated. There are various tests to qualify you for certain tax breaks, and it is best to have a knowledgeable CPA handle this for you.
You Have Bank Accounts and Other Assets in a Foreign Country
The days of secret Swiss bank accounts are over. Both the IRS and the US Treasury require you to report your bank accounts and other assets located in foreign countries. The penalties for failing to report are steep – as high as 50% of the maximum account values. There are certain thresholds under which you may not need to report these items. A CPA can calculate and advise here.
Working With Dulin Hassett
The tax professionals at Dulin Hassett in Houston can help you with all of your tax questions and help ensure that you are accurately maximizing your return.
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