When It Pays to Hire a CPA

When It Pays to Hire a CPA


Marty Horick never had trouble doing his own taxes, but for tax year 2023, he found himself in need of an old-school CPA. That year, he faced the complexities of selling his New York home, working remotely for a Florida-based corporation, and resolving a notice from the IRS about a mistake in his 2022 child tax credit payment. “Life got more complicated. Taxes got more complicated,” Mr.  Horace said. In January, he turned to a CPA recommended by a friend.

While commercial tax software makes it easier to file taxes yourself, the growing complexity of tax situations is leading more Americans to seek professional help. The IRS reported that the majority of e-filed tax returns last year were completed by paid tax preparers. This filing season, as of February 24, the number of returns filed by paid preparers has increased by 6.1% compared to the same period last year.

When to Consider Professional Help

According to Max Fine, a certified financial planner, paying for an expensive tax preparer might be unnecessary for taxpayers with straightforward returns. Examples of straightforward returns include a retiree with a Social Security check, a pension check, and an annual distribution from an IRA, or a married couple with W2 wage and tax statements and limited investments outside their workplace retirement plans.

However, taxpayers with more complex situations, such as working in multiple states, having restricted stock units that vest, or selling a rental property, may find the DIY approach risky. Taxpayers with self-employment income might also benefit from professional advice due to higher audit risks associated with business deductions or the home-office deduction.

The decision ultimately depends on one’s knowledge and willingness to handle the task themselves. While a paid preparer is responsible for the substantive accuracy of your return, you are ultimately responsible for the accuracy of every item reported.

Checking a Tax Preparer’s Credentials

If a preparer lacks an IRS-issued preparer tax-identification number (PTIN) and doesn’t sign the return, it’s a red flag, according to Melanie Lauridsen, director for tax and ethics with the American Institute of CPAs. However, having a PTIN doesn’t guarantee expertise: over 75% of all return-preparer penalties issued by the IRS in 2021 were assessed against noncredentialed preparers, noted National Taxpayer Advocate Kate Newcombe.

Of the 700,000-plus individuals with a PTIN, fewer than half have credentials such as a lawyer, certified public accountant (CPA), or enrolled agent. These credentialed preparers must pass competency exams, meet continuing education requirements, and adhere to standards of conduct. They can also represent taxpayers before the IRS during audits or collections proceedings. The IRS has a directory to verify a preparer’s credentials.

Beyond Credentials

Mr. Ernst suggests asking potential preparers about their core practice to ensure a good fit. A new preparer should request the previous year’s return, as there are items that carry forward that taxpayers might not mention. It’s also beneficial to find out if a tax pro only prepares returns or also engages in proactive tax planning. Many tax pros just file returns and move on.

The Benefits of Using a CPA

Using a Certified Public Accountant offers numerous benefits, particularly for individuals and businesses with complex financial situations. CPAs are highly trained professionals who must pass rigorous exams and meet ongoing education requirements, ensuring they are up-to-date with the latest tax laws and financial regulations. They provide expert advice on tax planning and compliance, helping clients minimize tax liabilities and avoid costly mistakes. Additionally, CPAs can represent clients before the IRS in case of audits or disputes, offering peace of mind and professional advocacy. Their comprehensive understanding of accounting, auditing, and financial reporting makes them invaluable for strategic financial planning and decision-making, ensuring clients achieve their financial goals efficiently and effectively.

Using a CPA can save you money by optimizing your tax strategy and ensuring compliance with complex tax laws, which helps you avoid penalties and fines. CPAs are adept at identifying all available deductions and credits, ensuring you don’t miss any opportunities to reduce your taxable income. They can provide strategic financial advice that aligns with your short-term and long-term financial goals, helping you make informed decisions that maximize your savings. Additionally, their expertise in financial planning can help you identify cost-saving measures and investment opportunities, ultimately enhancing your financial health and ensuring you retain more of your hard-earned money.

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