Why Do You Need Tax Services?
Death and taxes.
You probably have heard before that everyone will experience both of these things in their lifetime.
Though we can’t speak too much on the death part, with taxes, we have you covered.
Whether you make $50,000 per year or $50,000,000, taxes are your biggest expense. Which is why so many people enlist the help of a tax professional to prepare their returns.
Not only that but a tax accountant can help you structure certain transactions throughout the year to save you in taxes. This is called tax planning.
In most cases, unless you have an accounting background, knowing all the ways you can save in taxes is virtually impossible.
Certified Public Accountants (CPAs) go to school and take difficult tests to learn all about taxes. Where it might take you hours to find just one tax credit, a CPA might already know all of the credits that apply to your situation.
This is why over 60% of taxpayers use a professional when tax time rolls around.
Now, you might be thinking, “My taxes are simple”, or “I don’t have alot going on” and therefore you choose to do your own taxes.
The facts are tax laws have changed. And unless you’ve read all 1,097 pages of the Tax Cuts and Job Act, you have limited knowledge on the impact of your taxes.
In addition to tax laws being completely different than before, hiring a tax professional reduces the risk of errors. And making tax mistakes are extremely costly.
If you’re still not convinced, consider these 6 triggering events below that might cause you to hire a tax professional.
1. You Don’t Have Time
You should never rush the tax filing process. If you find that you’re waiting until the last minute to file your taxes, chances are, you’re too busy. And being so busy that you’re rushing limits your ability to take advantage of every possible deduction or credit.
Effective tax preparation involves research. If you want to pay the least amount of taxes, you have to know tax law and IRS forms. Unless you are CPA, it’s highly unlikely that you’re familiar with all of the ways you can save.
The same is true for business owners!
Time is especially limited for business owners. From managing your business, employees, and customers, your time is precious.
Tax time may come around at the same time every year but it just never seems to be convenient!
Well, what do you do?
Filing your taxes is not a request or option. It’s legally required. So even if you’re up to your neck in work, the IRS still expects you to file on time.
Some business owners believe that by filing an extension, this gives them more time to file. This is true. But a common misconception is that extending, extends your deadline to pay taxes and that is not true.
The IRS still expects all taxpayers to pay on time, on the originally due. If you don’t, the IRS will charge you penalties and interest ON TOP of the taxes you owe.
Avoid those unnecessary fees. It’s time to look into tax services.
2. You’re A 1099 Contractor
Do you receive 1099-MISC forms at the end of the year? Do you operate your own business? Yes? Then you need a tax preparation service.
1099 contractors have a little more going on than an average W-2 employee. There are expenses associated with running your business. And if you’re not keeping proper track of them, you’re missing out on thousands of dollars in tax savings.
Are you receiving more than $600 per year from some of your customers? Depending on your industry, ALL of your customers could easily be paying you significantly more than that. Usually, those customers should be issuing you a 1099-MISC at the beginning of the year.
Form 1099-MISC reports the amount of income they paid to you for the previous year. 1099-MISC is necessary for any contractor to file taxes. Your income on your return comes from the income figures on all of your 1099s.
This number HAS to be accurate. Why? The IRS knows how much you earned income from the 1099s that were filed by your customers. And inconsistencies will lead to an IRS letter.
Income is not the only item to consider. Expenses are another piece to your taxes. If you want to save in taxes, that is.
Keeping up with expenses is only a part of it. As a business owner, you have to make sure you’re classifying every expense correctly. If not, expenses would be incorrectly deducted on your tax return.
Any errors on your tax return will raise red flags by the IRS. And no one wants a letter from the IRS. Even more so, no one wants to pay more to the IRS than they legally have to.
3. You Have IRS Issues
The dreaded letter. Coming from the 3 scariest letters. The IRS.
The IRS will NEVER email or call you demanding immediate payment. But they will mail you a letter. Usually in this letter is a date, reference number, relevant tax years, your information, and of course taxes, penalties, and interest fees that may apply.
No one wants one of these but it happens. Probably due to an error, omission, or even fraud on your tax return for the years in question.
Regardless, if you hire a tax firm to file your taxes, you are ALWAYS responsible for the information on your return. But what a tax firm or a CPA can do for you is represent you in front of the IRS.
For example, you may not fully agree with the taxes the IRS says you owe. In which case, a licensed CPA can represent you in front of the IRS. A CPA can build a case in your favor which would be more favorably received by the IRS.
CPAs and other tax services can help you long before any IRS dispute goes to court too. CPAs have the “know how” to reduce or eliminate penalties on your account. They have experience with talking with the IRS in a “non-criminating” way to get you back on the IRS’s good side.
The cold truth is people go to jail over tax issues with the IRS. Would you go to court without legal representation? No. So it is wise not to battle the IRS on your own.
If you want a CPA or tax professional to get the IRS off of your back, you’ll need to sign a Form 2848, “Power of Attorney and Declaration of Representative”. This form lets the IRS know that you allow a specified tax professional to handle your tax affairs. You can specify on Form 2848, which tax matters you want your accountant to have power of attorney on and for which tax years.
4. You’re Behind On Your Taxes
Let’s say you’re behind on filing your taxes and the IRS has NOT sent you a letter.
This means you’re in the clear, right?
Wrong.
The IRS has 7 years to challenge you on your taxes for a particular year.
And if they haven’t sent you a letter yet, believe it is coming, especially if you owe taxes.
It is a whole lot better for your situation, if you file for the missed years, as opposed to waiting for a letter from the IRS.
To ensure that everything is done correctly the first time, an accountant should file the prior years for you.
5. Major Life Events
Experiencing a major life event during the year is a good reason to outsource tax services.
Whether you got married, had a child, got a divorce or bought a new home, the way your taxes are done will change.
For example, if you got married during the year, you now have more options in how you can file your taxes. You could file as married filing jointly or married filing separately. Both of which offers different deduction thresholds and credit eligibility.
In some situations, filing separately can be more beneficial than filing jointly. Only an accountant can walk you through those differences.
Or maybe you had a child in the year? This life event will greatly impact your return. More forms and calculation go into a return with a dependent.
6. More Than Just The “Tax Guy”
An accountant can do more than just taxes. Typically, an experienced accountant can act as more of a financial expert for you.
They can usually provide financial advice surrounding retirement, business or investments.
Accountants work with more than just one type of individual or business. Their knowledge is widespread so they can give you value beyond just taxes.
Choosing The Right Tax Service
All tax services are not created equal. Choosing the right accountant is just as important as deciding to outsource your taxes. You want to make you choose someone who is qualified and experienced.
Below are 4 things to consider when choosing a tax accountant:
- Education. Everyone who calls themselves an accountant does not necessarily have a formal education in accounting. Schooling is not everything but it does count and speaks to the knowledge the individual has.
- Experience. Experience is just as important as education, if not, more. Someone with years of tax experience would be able to deliver the best service for you. Which can include saving you more in taxes.
- Price. It matters! Some tax services charge significantly more than others. For example, if you hire a CPA to file your taxes, their rate is typically higher than that of a regular accountant. Their value could also prove to be worth it. It just depends on what you expect from your accountant. Check out this blog which outlines the differences between an accountant and a CPA.
- Communication. Some tax accountants don’t make it a point to consult and communicate with their clients. Or they charge a ridiculous hourly fee in order to talk to them. These are YOUR taxes. And you should understand them. Find an accounting service that will explain your return to you.
These are just a few items to consider when choosing a tax service. Think further about what you truly want from your taxes and the whole filing process. And find an accountant that aligns with your goals.
Next Steps
Taxes and the IRS are never going away. As long as the government is still up and running, everyone will always have to pay taxes.
Are you a CPA? Or tax accountant? Leave the stress of filing taxes to the experts.
Since taxes are your biggest expense, you should take steps to ensure you are not paying a cent over what is legally required. An experienced, reputable tax service can do that for you.
Consider us, here at LYFE Accounting. Not only can we file your personal and business tax returns, but we also deliver friendly, tax saving service.
Death and taxes are never going away, but don’t let your taxes be the death of you. Contact us today!