Tax season is fast approaching and after the 2020 roller coaster ride, this could be the year you can get extra help filing your tax return.
The coronavirus pandemic has resulted in many changes to the tax number that could affect filers who generally would have received a hassle-free return, potentially making your return difficult.
“For the average taxpayer, I don’t know what else to add if your head isn’t turning,” said Megan Gorman, attorney and managing partner at Checkers Financial Management in San Francisco.
Because of these changes, it might be a good idea to establish a relationship with a tax advisor such as an accountant or CPA, an IRS registered agent, or someone who has a tax identification number for the tax advisor with the IRS.
If you do your own taxes it makes sense
Of course, despite the events of 2020, many people will continue to benefit from using online tax filing software, often available for free or inexpensively.
“The online software is really good,” said Adrienne Ross, certified financial planner and founder of Clear Insight Financial Planning LLC in Spokane, Washington. “They update them every year, they adhere to the tax law.”
According to Susan Greenhalgh, an accredited financial advisor who runs Mind Your Money LLC in Rhode Island, the step-by-step approach that many online tax preparation platforms use is helping education the taxpayers who use them.
“If you have a desire to really connect with how taxes work and maybe even save yourself some money later by doing something else, you can do that,” she said.
“TurboTax has Covid-specific guidance to address the 2020 impact like unemployment or applying for a refund loan,” said Lisa Greene-Lewis, CPA and Tax Expert for TurboTax, in an email, adding that TurboTax also services for self-employed and companies.
Customers can also video connect with a CPA or tax professional to answer questions or have taxes reviewed, or hand their return completely to a professional, she said.
When it’s time to get extra help
However, there are times when financial experts recommend going beyond the online software to file your taxes.
For individuals, this can include changes such as getting married or having a child. If you have investments like stocks and bonds, making capital gains, listing deductions, making a contribution to charity, incurring significant medical expenses, or being a homeowner, it may be time to get started with a tax professional.
A good rule of thumb is that if you need to file tax forms for IRS Schedule A through F, according to Sheneya Wilson, CPA and founder of Fola Financial in New York, it is probably time to work with a tax professional.
“If you trigger any of these schedules, be sure to consult a CPA because then tax codes can get much more complex,” said Wilson. “In companies in particular, they tend to overpay because they are unfamiliar with the rules for deducting that income.”
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Even if you enjoy doing your own taxes but aren’t sure you’ve done everything right, it may be worthwhile to get a tax professional to review your tax return before filing it.
“It will always be beneficial to have someone to speak to and manage your numbers,” said Anjali Jariwala, CFP, CPA and founder of Fit Advisors in Torrance, California.
Covid made some specific tax changes
The CARES bill passed in March also provided some relief for coronavirus, which will affect taxes for some in the coming years, and the recent coronavirus package expanded some tax rules.
For example, if you created a 401 (k) plan retirement account because of Covid, the usual penalty has been waived and the taxes can be spread over the next three years.
“If you just go to a regular tax preparation business that you don’t have the same preparer year after year, how can you make sure this is done correctly on your tax return?” Said Gorman.
If you’ve been unemployed at any point in the last year, didn’t get a stimulus check and need to apply for a refund credit, or are a small business that applied for the paycheck protection program, hiring a tax professional could be a huge benefit this year and affect your taxes in the future.
Justification of the costs
Cost usually plays a huge role in choosing tax preparation services and there is a wide range available.
If you’ve got a simple return, you might be able to file for free through the IRS and online services like CreditKarma, H&R Block, TurboTax, and more, although some of these companies may charge additional government return fees.
Many of these companies also offer inexpensive tax return options.
For example, H&R Block and TurboTax online tax preparation starts at $ 29.95 and $ 90, respectively, although this can be more expensive for premium services like chatting with an expert online.
Working with an accountant is usually more expensive. The average fee for an accountant to create and file a Form 1040 with the standard deduction and a state return is $ 176, and a Form 1040 with detailed personal deductions and a state return is $ 273, according to the National Society of Accountants. More complicated returns can cost even more – the average cost of a Form 1040 with a Schedule C for Small Business Income and a government return is $ 457.
Of course, the cost of a skilled tax planner can help you get the most out of all the benefits that are due to you, including credits, deductions, and more.
“You may have missed a loan that is worth more than the fee you paid,” said Luis Rosa, CFP and registered agent and founder of Build a Better Financial Future in Henderson, Nevada.
If you hire a tax planner now, you can and should work with them year round.
“Ask what other planning services they offer – they can be incredibly valuable,” Gorman said, adding that people often take an active approach to investing and a passive approach to tax planning when the reverse is true.
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