In the coming months, all we be looking to complete their tax preparation and tax return, and for many of them, they will be wondering if they should do it the DIY way or hire a professional to help them out. Below, we will give you a complete breakdown of who should go it alone and who should invest their money in a pro.
Business Owners – Get a Pro
As discussed in this week’s Lifehacker Column, anyone who owns a business should spend the extra money for a professional. The main reasons for this is that the tax preparation professionals know which deductions and exemptions best fit their clients in their state.
As explained on the site, “When you start a small business, you bring in some money from your customers, you spend a small amount of it on computers, restaurants…and so on. What’s left over is the profit, which normally flows straight down to your personal income tax return.” Those filing tax returns as self-employed must pay the full 15.3% for Medicare and Social Security off the top of their income. Then they must pay federal, and if applicable state, taxes on this income that can really add up. The deductions, credits, allowances, etc. come after this payout. Unless….
S Corporation Owners – Get a Pro
Those who are eligible to file as an S Corporation have many advantages. This because when a tax payer reorganizes as an S corp, it is the corp that is making the profit and the individual is labeled an employee of the company even if they are the owner and sole employee. The corporation is then allowed to pay them a reasonable wage, with the rest of the corporation’s income as labeled as a dividend, which is exempt from the 15.3% tax.
Need help setting up an S Corporation in Texas? Click here
Mistake Prone? – Get a Pro
It only takes one instance of filing a faulty tax return to get you to wish you had hired a tax preparation pro. The IRS is ruthless, merciless, and uncaring about those who forgot to carry the one. The fines, penalties, and hassle from the IRS can be far more expensive than spending a few hundred to get it handled professionally. There are even instances when a simple error can cost thousands of dollars to remedy.
Simple File? Same as Last Year? – Do It Yourself
So who should prepare their own tax returns? If you have just one or two W-2’s and are sure it’s not worth it to file for all deductions, credits, exemptions, and such, you may file a simple return yourself. All you truly need is the amount of income, your Social Security Number and other basic info, and even a simple tax return allows you to take a few deductions. Another bonus of the DIY way is that you can file for free in many circumstances.
I Bought a Tax Preparation Computer Software – Get a Pro
Yes, there are great pieces of software that allow you to file a tax return, and many of the tax professionals and accountants use them. However, like most complicated pieces of technology, they are best used in the hands of a pro. Mistakes can happen on software just as they can with good old hard copies, but if you’ve done it before without an issue and have a knack, you may be able to go this route. Another tip to remember is that there is also the consideration of time vs. money. If it’s taking too long to do your tax return, maybe you should kick it out a tax preparation pro.
Tax Preparation in Houston
And if you live in the Houston area or suburbs and would like assistance in your tax preparation and return, please contact me.