Welcome to Money Mondays–your 2006 tax season guide. In ten weekly articles, I will help you navigate the intricate tax world with topics ranging from hiring a tax professional to planning for retirement. The articles aim to provide guidance with clear and concise information. The tips and hints should make your life less stressful this tax season.
So let’s get started! First, consider whether or not you should hire a tax professional.
It is the second week in February, and like it or not, April 17th is right around the corner. You have probably received tax documents like W2s or 1099s. As we progress through life we hope our finances become more bountiful and complex. Be mindful that what worked for you a few years ago may not suit you today. Now is a perfect time to evaluate your tax needs. Ask yourself a few questions:
- Who will prepare your returns this year?
- Have you self prepared your taxes in the past?
- Do you have a trusted tax professional?
- If not, should you choose one?
There are many reasons to hire a tax professional. Navigating the tax laws is complex. The intricacies and fine print are difficult on many levels. Industry specific terms act like a language barrier. Add to those factors the uniqueness of our LGBT lives and taxes can become a real nightmare.
The countless advantages of hiring a pro are different for each of us. Our reasons vary and they are all valid. Consider the following when determining if hiring a tax professional is the best decision for you.
1. Saving time.
Adding “tax prep” to our to-do lists is hardly exciting. Our lives are overflowing as is. If the idea of dedicating hours (in some cases even a weekend) to preparing your taxes makes you cringe, find another way!
Consider the value you assign your time. If money is more plentiful than your time, outsource your tax prep. Keep in mind that your state laws may vary from federal law. For example, California has many differences. The addition of time to figure your state taxes (and estimated payments if necessary) may be enough motivation to recruit help.
2. Relieve frustration.
You are intelligent, successful and smart too. Given the proper tools you can figure anything out–but at what cost? The frustration of laboring over tax details isn’t worth the extra wrinkles and gray hairs it can produce.
Are you a stickler for details? Do you like your accounts balanced to the penny? If accuracy is your main concern, call a tax professional. Being detail oriented is a trait common among us money pros. Tax preparers also handle mass quantities of returns each season. Simple errors that are easily overlooked become glaring to our eyes.
4. Do you have a simple or complex tax return?
Your return is considered simple if you are employed, receive a W2 and do not itemize you deductions. Free support and inexpensive software make self-preparation fast and easy. This is a great option for simple returns, if you are confident with your abilities. (FYI, an upcoming Money Monday article will discuss tips and hints for self-preparing.)
Complex returns can include one or more of the following:
- Property acquisition or liquidation
- Business ownerships including self-employment
- Retirement or estate planning
Complex returns, by nature, allow more opportunities for errors. If you’re concerned about the intricacies of your return contacting a tax pro will definitely prove beneficial.
5. Are you confident & knowledgeable about current tax laws?
If tax laws and numbers make you nervous, notice your physical responses. An upset stomach or headache while gathering your tax documents could be a warning to heed! Your body may be signaling you away from a risky situation. Follow your intuition and call a specialist if you have doubt.
If you have no clue what you’re doing, come to terms with that fact. Remember your taxes are ultimately your responsibility, regardless of who prepares them. This is a case where a little lack of knowledge can lead to costly results.
If you’ve self prepared before and aren’t intimidated by the vast amount of info on the IRS website, go for it! You may only need to consult a tax professional on specific issues, or choose to hire a professional to proof your taxes.
6. Have you received notice of an audit? Do you need someone to represent you?
I hope Queercents readers never receive a notice of audit! In the event that we do, reliable support can be a life saver. Contact a tax professional adept in audit defense. They have worked closely with the IRS before. They know the beast you are up against and greatly improve your chances for success!
7. Will you need tax advice throughout the year?
Developing rapport with a tax pro now eliminates scrambling for reliable advice when your tax questions arise. This is crucial if you own a business or are self-employed. A trusted tax advisor can even save you money by alerting you to your eligible deductions and providing customized strategies you’re your success.
8. Planning for your future
Certain contributions to retirement accounts are tax free until distribution. Early distributions can trigger fees and penalties. Understand how your retirement accounts are tax related. Consider hiring a pro if you have questions about your existing retirement accounts or would like to develop a retirement plan.
9. Need cash now?
Tax professionals can help you electronically submit your tax returns, or e-file. This streamlines the filing process resulting in quicker refunds. E-filing can speed the processing of a refund down to as little as one week (with direct deposit). Some tax preparers even provide Refund Anticipation Loans (RALs) where a tax payer can borrow the anticipated amount of their refund, minus fees of course.
After contemplating these questions, you should know if contacting a tax professional is in your future. As we all know, good help is hard to find. Choose the person who will come to know the intimate details of your finances carefully. Check back next Monday for a tutorial on choosing a tax professional. Learn questions to ask and warning flags to avoid.
I hope you enjoy our Money Mondays column. We welcome your comments below. In the meantime, feel free to contact me with your tax questions.