The experience of filing your tax return can range from a minor hassle to a major headache. If your taxes are feeling overwhelming, you might wonder if you need the help of a tax professional like an accountant. For many people, online tax filing software gets the job done just fine. This is more likely to be true if your tax return is pretty simple. But for others, it’s better to hire a pro. Here are eight signs you should consider using an accountant for your taxes.
1. You could be subject to the Alternative Minimum Tax (AMT)
Many Wealthfront clients are subject to AMT, which is a separate tax system that ensures everyone pays at least a minimum amount of taxes. One common AMT trigger is exercising incentive stock options (ISOs). When you exercise ISOs, the difference between the strike price and the fair market value at the time of exercise is subject to AMT, even if you don’t sell the security. The good news is that the AMT you pay can be credited against the taxes you’ll owe when you sell your stock later. In general, paying the AMT makes your taxes more complicated, and you might benefit from working with a professional.
2. You own a business or are self-employed
If you’re self-employed or own your own business, you need to track any deductible expenses over the course of the year and remember to make quarterly estimated tax payments, because you won’t have an employer to do it for you. An accountant can ensure you get the details right.
3. You need to pay quarterly estimated taxes
There are multiple reasons (in addition to being self-employed or owning your own business) that you might need to pay quarterly estimated taxes: these include selling investments, receiving income from a rental property, and being paid alimony. As a rule of thumb, you’ll need to make estimated tax payments on income that isn’t subject to withholding and also on income that isn’t subject to enough withholding.
If you expect to owe more than $1,000 in federal taxes (beyond what’s already being withheld), consider working with an accountant to make sure you avoid penalties.
4. You owe taxes in multiple states
If you started the tax year living in one state and ended it living in another, you’ll have to file two part-year state tax returns. The process varies depending on the states involved, but in general, you’ll need to determine what portion of your income will be taxed by each state.
There are other situations where you could owe taxes in multiple states. For instance, maybe you live in one state and work in another. Or perhaps you own a rental property across state lines. These scenarios can be complex and it’s helpful to have an accountant to guide you.
5. You recently bought or sold a home
Whether you recently bought a home or sold one, an accountant can help you minimize what you owe. Buying a home often comes with tax deductions and credits you won’t want to miss out on—notably the mortgage interest deduction and state and local tax (SALT) deduction. Selling a house can generate a large taxable gain, but you may be able to qualify for the lower, long-term capital gains rate or reduce your tax liability using the home sale exclusion.
6. You’re setting aside money for the next generation
Many people are interested in creating generational wealth, and accountants can be a valuable part of that process. For example, they can help you decide which vehicles to use for tax-deferred or tax-free saving, whether you are considering a 529 plan for college saving or creating a trust for your children.
7. You plan to make a large gift
Charitable donations can seem simple, but they often aren’t. An accountant can help you look into the tax advantages of the different possibilities, including using your retirement plan as a source of funds or setting up a donor advised fund.
8. You’re being audited, or think you could be audited
According to Kiplinger, well under 1% of all tax returns get audited—so in any given year, it’s not very likely you’ll receive a call from the IRS wanting to verify your tax return. However, there are a number of factors that can put you at higher risk of being audited, like claiming very large deductions relative to your income, owning a business that operates mostly in cash, or owning assets in a country other than the United States.
If you think you might get audited, you may benefit from working with an accountant. You’ll have more confidence that your tax return is correct, and you’ll have a professional on your team who can help you navigate the process.
Do you need an accountant?
If your taxes are relatively simple and the points above don’t apply, you probably don’t need an accountant to help you with your taxes. But if some of the points above sound familiar, you might sleep better at night knowing you’ve got a professional in your corner. If you decide to hire an accountant, here’s a resource to help you choose one.
Keep in mind that some online tax filing services like TurboTax will give you the option to work with a live accountant if you have questions. Wealthfront clients who use TurboTax get $20 off the cost of filing and can automatically import information, including Tax-Loss Harvesting transactions.
Whatever you decide, we hope these tips make it easier to navigate tax season. For more information, check out our article on how to get ready to file your tax return.
Image and article originally from www.wealthfront.com. Read the original article here.