For the majority of high-income earners who have financial complexities such as business ownership, home ownership, investments and more, hiring an accountant can make sense.
However, some entrepreneurs and retirees prefer to face tax time alone, despite having significant investments or multiple streams of income.
What is it that makes someone hire a tax professional versus handling their own returns? Let’s look at the pros and cons.
Pros: Time and Money
Despite being a financial writer who enjoys handling money, I hire an accountant to do my taxes. I do this so that I can have a professional double check my business income and expenses.
I’m always concerned about properly listing my business deductions, and I want a second set of eyes to look over everything and make sure my deductions are accurate. I also want someone on my side should I get audited; someone I know well who has detailed knowledge of my personal and business transactions. I’m not alone.
John Schmoll, who owns the popular website Frugal Rules and co-owns a copywriting business with his wife, said, “As our business grew I felt that I was overlooking opportunities to save money in different areas, and that I really wasn’t doing our tax situation justice. We ended up hiring a CPA three-to-four years ago and, in all honesty, it’s one of the best things we’ve done for our business.”
John went on to say that his accountant saves them thousands of dollars each year by taking advantage of deductions that John wasn’t aware of previously.
This also brings up the great point that it can be good to work with someone to toss around ideas on how to lower your taxes. After a rather high tax bill this year, I’m already working with my accountant to plan for my 2017 taxes to find ways to reduce the taxes I may owe next year. Although I’m well versed when it comes to finances because of my job, I still enjoy working with a professional to see what he recommends to lower the amount I owe.
For Grayson Bell, the owner of the successful company iMark Interactive, hiring an accountant was more about saving his already limited time. He said, “I used to do my own taxes, but then realized I could better spend my time and energy running my business and gaining more clients.”
This makes sense too. It takes me hours just to gather and prepare all of the paperwork to send to my accountant. Plus, my accountant can complete my returns in way less time than it would take me. I’d rather focus on what I do best and outsource my taxes to someone who is an expert.
Cons: A Missed Learning Opportunity
You might assume that hiring an accountant is the way to go, especially for high income earners. That’s not always the best option, though. Although hiring an accountant does save time and has the potential to save money if you’re uncertain of deductions that apply to you, it still can be a pricey service. Plus, you miss out on personally learning about the tax code, which can prove useful in the future.
That’s a big reason why Greg Johnson decided to file his own taxes. Greg and his wife, Holly, run a successful blog called Club Thrifty. Holly was recently featured in Forbes for earning $225,000 from freelance writing income alone, not including her and Greg’s blog business income. Add that to owning an LLC taxed as an S-corp and having two rental properties, and many would assume the Johnsons definitely need an accountant.
However Greg says, “Even though we earn more than we used to, I still choose to do my own taxes. In addition to saving money on accountant fees, doing my own taxes has taught me a lot about both my personal finances and my business.”
When you outsource this, you can give up the chance to learn about new tax laws and deductions that might affect your personal and business taxes.
My father-in-law, Darryl Alford, is another example of a high net worth individual who has filed his own taxes for over 50 years. Despite having rental property, complex investments, and multiple streams of income, he still manually completes the tax paperwork every year. When I asked him why he’s done his own taxes all these years (he’s 75) he said, “I just started doing it years and years ago when it was simple, and I just grew into it as it got more complex. Each year, I learned more and more, so it was just a gradual process.”
As you can see, deciding whether to hire an accountant is a very personal decision, and depending on how complex your finances are, you may want to put some thought into whether one is right for you.
Do you file your own taxes or do you hire an accountant? Why or why not?
[Taxes are a small part of the larger financial picture. Register for Personal Capital’s free financial tools to see if you are on track with your long-term financial goals]