For a complete guide to filing your income taxes in 2019, read our 2019 Guide to Income Tax Filing.
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: Expert Advice & Efficiency
Even if you enjoy handling money, hiring an accountant to do your taxes can still be a good idea. Having a professional double check income, expenses, and deductions can be extremely beneficial and reduce errors.
Hiring a tax professional will not only give you a second set of eyes on your return to ensure everything is correct but will also put someone in your corner should you get audited; someone you know well who has detailed knowledge of your personal and business transactions.
John Schmoll, who owns a popular finance website 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.
Beyond simply preparing tax forms, a good accountant should be involved in business and personal planning throughout the year. Typically, a quarterly review should be scheduled to ensure books and records are in order. This also allows the CPA time to advise clients about their businesses or personal situations, so they function with peak tax efficiency.
For Grayson Bell, the owner of the WordPress competitor 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.”
It can take an individual hours just to gather and prepare all of the paperwork to send to their accountant, much less prepare and file taxes themselves. Wouldn’t you rather focus on what you do best and outsource your 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 finance blog. 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.
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.