While some people choose to do their taxes on their own, many more people go with tax professionals to get their taxes taken care of each year. Should you file your own taxes or hire a professional? There is no clear matter on the answer. However, there are certain general groups of people that are better off using tax professionals each year. Taxes can be a complicated matter, especially when certain financial information is factored in. In most cases, the following types of people should not file their own taxes.
1. Stock Market Investors
Investing in the stock market is a great way to make some extra money, whether it’s from capital gains or dividends. For taxes, stock market investments aren’t as nice because it can start to get complicated for big investors with many different stock holdings. Each individual stock sale for the year must be noted along with all taxable dividends and capital gains. Adding in short term and long term holdings makes it even more difficult. In the end, most people won’t have the slightest clue as to what they are doing, even if they are seasoned stock market investors. Small investors, however, shouldn’t have too much trouble with their taxes.
2. The Self-Employed
Self-employed individuals (but not business owners) usually do freelance type work, which can come from many different sources. As soon as self-employment comes into play, Schedule C for tax returns also pops up. Schedule C can get complicated for individuals, especially those who work for multiple different websites and companies for their freelance income. Plus, self-employment income is taxed differently from normal income. All of these different variables along with different rules for reporting income and how the income is treated is normally too much for the average taxpayer. Without a doubt, most self-employed workers should use a tax professional.
3. Small Business Owners
During any given year, small business owners will have to deal with multiple loans, hundreds or thousands of sales, and business expenses. They must factor in business expenses and more after that. Small business owners have so many factors to consider and records to keep that it would be a mistake to try to do their taxes by themselves. Unfortunately, taxes become much more complicated when a person owns their business. With so many variables to deal with, every small business owner should leave taxes up to the professionals.
4. Dependents of Other Taxpayers
Many dependents are claimed as such on their parents’ tax returns. Unfortunately, this can have some negative consequences on the dependent when he or she goes to file their own return. A person claimed as a dependent cannot qualify for any exemptions and will receive a reduced Standard Deduction. On top of that, matters involving education costs and more can really confuse both dependents and their parents. Anyone listed as a dependent on their parents’ tax return should stick with a tax professional to avoid any problems, unless they have an extremely straightforward and simple return to file.
5. Taxpayers with Multiple Income Sources
Finally, we come to taxpayers with multiple income sources. This can be a mix of income from regular employment, freelance work, and stock investments. Either way, a person who obtains their income from many different sources is going to have a hard time with reporting it all to the IRS and getting the deductions they deserve. With that many sources of income, a person could be dealing with every form imaginable. W-2s, 1099-DIVs, 1099-INT, 1099-MISC, and Schedule Cs could just be the beginning of it all. Therefore, multiple income sources should be dealt with by someone who is qualified.
Get a qualified tax professional who knows what they’re doing!
Unfortunately, these types of taxpayers will have some difficulties finding the perfect tax preparer to help them out. Many tax preparers aren’t as knowledgeable in these other tax areas as they could be. A person has to search far and wide to find the perfect professional to fit their needs. Obviously, there is nothing worse than having a tax preparer make an error on your tax return. Don’t settle for a small-time employer at a franchised tax business. Work on finding a qualified professional that works with people in your similar situation.
For more information, visit 5 Reasons to Not Do Your Own Taxes and Should you file your own taxes?.