Should You Pay To Have Your Taxes Done As A Young Professional? 

Should You Pay To Have Your Taxes Done As A Young Professional?   By Matthew J Jones, CPA

After five years as a CPA, three of which I spent preparing every variant of tax form, I’ve learned there are certain conditions that make it worthwhile to pay a professional to file your taxes. The IRS doesn’t target specific occupations to audit, but factors such as income, deductions and investments can be red flags for an audit.

Although you may be thinking that it’s a bit early in the year to think about taxes, if you wait until April and decide to engage a professional, you may find that the best professionals are too busy or unwilling to take on a client at the eleventh hour. When my friends and colleagues ask me whether they should consult a professional*, I review the complexity of their return and whether it is worth the cost.

*Note: Fees paid to an accountant this year might be deductible on your taxes next year.

Less Likely

These are circumstances that might incline you to engage a professional, but it may be worth preparing your own taxes. This is the category where I fell in 2012.

  • Single
  • Did not change jobs during the year
  • Work in the same city that you live
  • Little or no charitable contributions
  • No student loan interest

You might be asking why it matters where you work and live. Growing up in Cleveland, I did not realize that Ohio has uniquely complex city tax laws (some of the most confusing in the country). Were it not for these local taxes, deciding whether to file on your own would be much less burdensome.

In general, you need to file taxes where you live. The taxes where you work should be taken care of by your employer (sometimes they make a mistake, but that’s another story for another post). If where you live and work differ, it’s necessary to reconcile what rates each city uses, whether they are managed by CCA or RITA (the two main taxing authorities in Ohio) or handle taxes independently like Lakewood (more on them later), and how they give credit for taxes in another city, if at all. The rates and credits differ by city and taxing authority, but what you need to know for your own purposes is that the complexity increases the more that the taxes differ between the cities in which you live and work.

I began my professional accounting career in the Fall of 2012. When Spring 2013 rolled around, the question arose of whether to pay someone to do my personal taxes. I had only one job, lived and worked in Cleveland, and had yet to pay my student loans. Also, I had no charitable contributions to deduct or real estate taxes. Because of this, I was able to file the very simple 1040EZ Form and basic Ohio and Cleveland tax forms.

With services like TurboTax, you might be able to file online this way for little or no cost.

Probably

These are circumstances when you may want to engage a professional, but if you are savvy, you might still prepare your own taxes.

  • Married
  • Itemized deductions:
    • Own a home
    • Very high income ($200,000+) or reporting zero income
    • Significant charitable deductions, particularly non-cash donations
    • Home office deduction
  • Paying interest on student loans
  • Switched jobs during the tax year

Three main factors are included in this section: marriage, itemized deductions, and switching jobs. Each of these is fairly common and increases the complexity of your return. Marriage raises the question of whether it is more beneficial to file separately or jointly and increases the likelihood that multiple cities are involved (as does switching jobs), while itemizing your deductions and deducting student loan interest prevent you from being able to file simplified tax forms.

Software programs enable easy filing for this category.  Many of these programs are free and can bring to your attention issues, follow-up questions and explanations while automatically updating calculations. If you begin with software and find that more and more questions arise, you may consider reaching out to a professional.

In 2015 I switched jobs, bought a house and moved cities. This was also the year I left public accounting and, with it, access to professional software for my personal tax return filing. I considered hiring a professional to prepare my taxes, but after two years of filing city tax returns for clients, I felt confident filing my own return. This wasn’t easy and required paper-filing due to software restrictions, but I managed to prepare my own taxes. If you do file your own taxes, give yourself plenty of time to handle questions and roadblocks that may arise.

Almost Certainly

These are circumstances in which it is wise to engage a professional.

  • Live in Lakewood
  • Live and work in different cities
  • Have your own business part- or full-time
  • Own complex investment vehicles, i.e. receive a K-1
  • Own rental property

Most of these are obvious, but you might be asking yourself why Lakewood made the cut. From my experience, Lakewood is notoriously diligent in reviewing tax returns and has a high young professional population. Unlike many other municipalities, Lakewood does not outsource income tax processing to CCA or RITA and regularly reaches out to residents to follow up on filings.

In 2016, I lived and worked in different cities, but the biggest change was the purchase of rental properties and the creation an LLC. At this point, I enlisted a professional to complete the LLC return, but I still filed my personal return myself.

Even Certified Public Accountants understand the value of a “fresh set of eyes” and when dealing with complicated and ever-changing tax law and its implications, my best advice is to avoid the logistical headaches associated with either “biting off more than you can chew” or having to backtrack to fix what would have been easily avoided issues.  Know your strengths and have confidence in your ability to try tax-filing yourself – just give yourself enough time to have a plan B if/when questions arise.

 

Matthew J. Jones is a CPA and Employee Benefits Consultant with Gallagher. He lives in Cleveland, Ohio and enjoys reading, cooking, traveling, and spending time with family.

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