When it comes to doing things yourself, or hiring someone to help you, most people ask a simple question to decide: “Can I do this myself?”
The answer to that is usually pretty simple, too. It’s either yes, you can, or no, you can’t. If you can’t do something yourself, you need to hire someone. And if you can handle it on your own, why bother?
There’s a big problem with this reasoning, however. Asking if you can do something isn’t as helpful as asking things like, “Do I want to do this?” or, even better, “Is this the best use of my time?”
I know I could paint my own house. But I’m just as confident that it would takeme at least three times as long as it would take a professional painter. It probably wouldn’t come out looking great (I am especially terrible at where the ceiling meets the wall), and the time I saved by doing it myself could be applied to other things that are even higher value than the dollar amount I paid for the work: spending time with my family, for example, or focusing on my business in a way that will help increase revenues.
Keep this in mind as you’re thinking about tax time next spring, especially if you’re asking if you should do your taxes yourself or not. It’s just like me and painting my house: yes, you probably could do your taxes on your own…
But do you think you are getting the maximum benefit from doing that? Are you confident you’ll make less mistakes and take advantage of as many tax breaks and credits as a CPA who knows tax law inside and out would? Is doing your taxes yourself the most efficient use of your time?
Probably not. As your financial life evolves, there comes a point where doing your own taxes just doesn’t make sense. Here’s how to tell if you’re there already, and need an accountant for your taxes:
1. Your Financial Situation Is More Complex Than It Used to Be
I know a lot of folks who did their own tax returns when they were working part-time jobs in college, and continued the practice once they graduated and started their careers.
And that made sense: as a college student or someone in the first few years of your working life, you probably (a) didn’t have a ton of money to invest in professional help and (b) didn’t really need it, because your financial situation was likely pretty straightforward.
When you started out, you may have been single, with no children or other dependents, did not own property, and may have worked a job where you got paid W2 income with no bonuses or perks like equity compensation.
But as you grow and advance in your career, you start earning more money. Your compensation package may evolve, or you could even start your own business which radically changes what your income looks like.
Your life can evolve, too, as you get married, start a family, buy a home, and make choices that have real consequences on your taxes.
As your life (financially and otherwise) gets more complex, it’s a sign that it’s time to work with a professional to make sure you’re handling your taxes appropriately. You can’t afford to make mistakes or miss out on tax breaks that could save you money.
2. You Own Rental Property
Owning a property that you rent out and earn income from can really help reduce your tax burden — but it can also complicate how you file.
Rental property can be advantageous from a tax perspective because deductions for mortgage interest and depreciation can help your bottom line. On the flipside, there are some potential pitfalls.
The IRS considers income you earn from your rental property as passive income. That makes the money your rental generates subject to special rules beyond ordinary income taxation. That can prevent you from using losses on rental properties to offset your other taxable income, like the salary you earn from your job.
I explained more about how rental properties might (or might not) fit into a financial plan to build wealth here, but when it comes to taxes — you need an accountant to help you and ensure you claim rental property income correctly.
3. You Have Executive Compensation
If you have supplementary compensation to your salary and bonuses, that’s a good sign that you need an accountant to help prepare your taxes.
Anyone with stock options, restricted stock, restricted stock units, performance units, phantom shares, and ESPPs should work closely with a CPA and a financial advisor to ensure you’re leveraging these assets appropriately… and not doing things that will land you in a lot of hot water come tax time.
Managing executive compensation can be extremely complicated and getting the timing and taxability of when to exercise and sell shares and options wrong can literally cost you tens of thousands of dollars. Even without making mistakes, if you don’t understand what actions will trigger taxable events, you could end up with a nasty surprise tax bill in the following year.
4. You Don’t Have Time
Again, I can paint my own house. But not only do I have no interest in doing this, I really don’t have time. Between running a business, spending time with my family, and pursuing personal interests, there’s not a lot of free time left over.
And I’m not particularly motivated to give up one of those things so I can make room to do my own taxes.
You’re probably in a similar situation. Doing your taxes well takes a lot of time. One of the main reasons to work with any professional is not only for their expertise but because you can outsource a task that may otherwise steal away entire days, even whole weekends, of your life each year.
Couldn’t that time be better spent?
5. You Own Your Own Business
Ask any successful business owner how important accounting is to their company and continued growth, and I’m confident they will say it’s critical.
Entrepreneurs usually succeed not because they’re excellent number-crunchers, but because they possess an in-demand skill set or ability. Performing the actual task that makes your business, marketing that service or product, and getting people to buy are big enough jobs to manage.
You can’t do those required tasks successfully and also build a strategy for continued success unless you understand the strengths and weaknesses in your business. That’s where a good accountant can become a critical partner in improving your chances of doing well now and in the future.
A solid tax accountant can help bring that all to light and provide insight on key performance indicators, which helps you improve your decision-making for your business. Plus, every other reason to hire an accountant listed above probably goes doubly for you as a business owner; not only do you have personal taxes to worry about, but you have business taxes to manage too!
These are just a few of the many, many reasons you need an accountant for your taxes. If even just one of these signs shows up in your own life, that’s good enough to reach out to a CPA and learn more about working together.
