When Is It Time To Hire A Tax Pro?


Show Notes

TurboTax is great for a lot of people, but how do you know when you've outgrown it?

Steve and Tyler discuss when it's time to find a good accountant who's worth the price to save your sanity and get your taxes done right.


[00:01] Steve: So speaking of TurboTax, you know how you get to the end of it and you've put in all the numbers, and then you click the button to, like, let's finalize everything, and it gives you the animations of, like, we're looking through all your deductions. We're double checking all the numbers. We're making sure that, yeah, it's a sham. It's just an animation. Like, what? Just to make you feel better. It's a psychological trick to make you feel better that the robots are doing all the checking, but they could take that out, and it would still give you the same result.

[00:28] Tyler: Man, that's crazy. So it's just to make me feel better. It's like they're checking all the boxes, dotting all the I's, crossing all the.

[00:34] Steve: T's, but it's all the calculations have been run as you've been going along all the time. I mean, to be fair, I don't know this for sure about TurboTax, but I know that this is a UI design principle that gets employed a lot. And so that's what I think every time I'm in TurboTax or H and R block and looking at that little animation.

[00:57] Tyler: You heard it here, folks. You heard it here first.

[01:01] Steve: Well, anyway hey there. I'm Steve.

[01:03] Tyler: And I'm Tyler. And welcome to It's Not About the Money, where we discuss a wide range of topics like entrepreneurship, leadership, productivity, and even taxes.

[01:13] Steve: We're not here to bore you with financial jargon or the tax code, although.

[01:17] Tyler: We might, but not on purpose.

[01:19] Steve: We're just a couple of small business owners trying to make sense of the world one podcast at a time.

[01:24] Tyler: That's right. And today we're talking about tools you can use to file your taxes.

[01:31] Steve: Yes, exactly. And when is it okay or good even to use the TurboTaxes or the Tax Act or what are the other ones? Tax layer, h and R block. When can you use those, and when do you need a tax pro?

[01:49] Tyler: So, Steve, let me just tell you, for many years, I did my own taxes using one of these what are they called? Self service tax preparing software?

[01:58] Steve: Self service DIY I don't know that there's, like, an official moniker for them, but that's what that's the category. That's the category, yeah.

[02:07] Tyler: And the first year that I became uncomfortable using that is the year that I first bought a home. And then all of a sudden, I didn't know what to do. This is going off of memory. It's been a long time. But yeah, for the average person, when does it make sense to use one of these softwares versus working with a tax professional?

[02:29] Steve: Well, so you hit on one of the two main reasons that I usually tell folks of, when is it time to go out and hire a tax pro? Versus doing it yourself? And that's when things got complicated enough that either you think you'll get a more favorable outcome with a tax pro, or you just don't understand the complexity yourself, but you know that the complexity is there and so you need somebody who can walk you through it, who has experience and knowledge.

[02:56] Tyler: So for me, it was partially the feeling that I might be able to save a little bit more money on my taxes, but also not really being sure if I qualified for clicking some of the boxes for a tax deduction.

[03:11] Steve: Right. So you want to be able to take advantage of all the deductions that you're eligible for, but you also don't want to commit fraud, right. How do you know unless you know the details?

[03:25] Tyler: Are there safeguards in place though, in these tools to protect you from accidentally committing fraud? Or is it pretty easy to just click through some of these and make a mistake?

[03:38] Steve: Well, I'm not sure. It's probably possible to make mistakes at least. But part of the animation that we mentioned earlier is it is checking for mistakes. It's cross checking the numbers and making sure that they add up properly. So there's that kind of error checking. And the questionnaire that the software is walking you through is asking enough questions to where if you're answering truthfully, then you should be able to tell, yes, I am eligible for this thing and I have done it properly. So for the most part, I think if you're answering truthfully, you're probably okay, that makes sense. If your taxes are complicated enough, that's a good reason to hire a tax pro. The other one that I see sometimes is they just don't want to do their taxes anymore. I had a client this year who had done their taxes all themselves, married, filing jointly, no kids, pretty standard situation, but they were just like, we don't want to do it ourselves anymore. It's not worth the time, we'd rather pay somebody to do it. That's a totally valid reason to hire a tax pro as well.

[04:53] Tyler: I think I fall into that category a lot of years. Plus I've used the same person to do my taxes for many years now. So we kind of have a relationship going. So it's just kind of nice to catch up once in a while. And I really love the feeling of being able to just drop a bundle of documents on his desk and then get my tax return in and out.

[05:20] Steve: That peace of mind is really big for a tax pro. That's the tagline of my firm is financial peace of mind for the busy owner. So I focus on solopreneurs and small business owners. But the financial peace of mind thing is kind of the big selling point for me, for my clients, where they just want to know that it's going to get done right by somebody they can trust. And you brought up another point. The relationship that you have with your tax pro hopefully spans many years and they get to know you, they understand your situation. So you're not having to repeat the same questions every year. And also you build that relationship of trust where you can rely on each other. That's a big selling point for a lot of folks that want to hire a tax pro. Adding on to that, a good accountant will often have a big network of other folks that serve small businesses that might have things that they need, services that they need. For example, I've spent the last couple of days interviewing attorneys, small business attorneys in my area because I have a client that needs a particular LLC situation resolved and I don't know the answer. I know just enough to know that there are several ways to do it and I am not the one to properly answer it. And so I've been trying to find a good attorney for them to go to who can answer their questions and get everything done properly. But I see that as part of my job as the accountant, is finding those connections for my clients of the other small business needs that they have that are not taxes but that are adjacent. And so networking with those folks and finding who's the best referral partner for this kind of client or this other kind of client, that makes sense.

[07:12] Tyler: And I imagine the longer you're in business, the stronger your network will grow and the more value you value you'll be able to provide to your clients for these additional services as referrals or whatever.

[07:28] Steve: Yeah, exactly. Cool.

[07:29] Tyler: So you've mentioned two reasons why you would want to hire a tax pro. And the first one is basically your situation is complicated enough that you're not confident in your ability to do it yourself. And the second one is basically convenience or not convenience, right. You're not wanting to do self, wanting to outsource this part of your life to someone who does it full time, is an expert at it and you're confident it's going to save a bunch of your time and make it a nice experience.

[07:58] Steve: Right. And especially as a small business owner, your time is money. And so that really does make a difference. If you can pay somebody to do something, you could probably figure it out yourself, but the time is not worth the amount that you'll pay a professional to do it.

[08:14] Tyler: I mean, there's probably a lot of people listening and people that I know who are like, you guys are crazy. I've always done it myself, I enjoy doing it myself. And that's great, right? Well, I guess it's not great for you.

[08:28] Steve: No, honestly, I have no qualms with that. If TurboTax works for you and you understand it and you're getting it right, more power to you. That's awesome, go for it. I don't have a problem with that.

[08:40] Tyler: Is it even possible anymore to file on paper and mail it in or is it all e filing these days?

[08:46] Steve: It is possible to file on paper. I don't recommend it to anyone, but some municipalities that collect taxes do not have e file options. For example, I had a client in rural Pennsylvania and their county taxes, I think that you can't file them online. You had to print out the paper and mail it in or take it in in person. That's the only time that I would say you should file on paper if you have to. Otherwise, yeah, e filing is the way to go. It's just faster and more likely to be correct when you e file. I, as the tax pro, sometimes will get the return kicked back because the Social Security number was wrong or something was missing, and it will catch those errors as soon as I file it and so I can correct them immediately and resubmit it, where if you filed on paper, you wouldn't find out for months, perhaps.

[09:52] Tyler: Yeah, that makes sense. I mean, I'd be curious to know if there's anyone out there who does still file on paper. That'd be cool. I mean, that's what I remember growing up my parents doing and teaching me how to do. But it's been a long time.

[10:05] Steve: Yeah, definitely.

[10:06] Tyler: So I've got a quick story to share about this. So for many years, like I said, until I purchased my first home and then ultimately sold it a few years later to move, my taxes were pretty simple. I never really had any questions, and I was used to getting like, a certain level of refund based on my withholdings from my employer. Right. But the year I sold my house was my first experience owing a lot of taxes. So when I had my tax appointment that year, I had a lot more questions. I wasn't expecting it. I was under the false impression that because it was a primary residence in certain circumstances, whatever, that it would be not taxed as much, maybe capital gain, whatever the case. Anyway, it was kind of a shock. And so I wonder if there's, like, what people's expectations are in terms of their returns. Does that lead to trust issues with either the tax prep software or the person preparing your taxes? Even though the number is right, you're not expecting it? I don't know. Does that influence the experience at all?

[11:11] Steve: Yeah, I, as the tax pro, don't like being the bearer of bad news, of, hey, you've got a big surprise bill due. And so I try to be proactive with my clients where we'll do some tax planning earlier in the year or like summer, fall of the year, so that we know this is how much has come in so far, this is how much we think is going to come in the rest of the year. This is what the taxes are probably going to look like just so they can prepare.

[11:36] Tyler: Yeah, it was not fun. I was expecting my few hundred dollars of return, and it's like, no, you owe whatever it was $3,000. And I was like, excuse me. And I guess that was on me for being ignorant and I wasn't working with my tax professional throughout that whole experience. I was just kind of doing business as usual. But yeah, I can also imagine maybe because I had a similar experience also when I was using I think it was Tax Act back in the day. It wasn't similar in the sense that I ended up owing a lot of money, but my return was going to be a lot smaller than I expected. And I think that's what initially kind of prodded me to start working with a person because again, it's just expectations based on probably nothing as just a layperson. But when it turned out different than I expected or different than it had been in years past, I got more interested in making sure it was.

[12:32] Steve: Correct.

[12:33] Tyler: If that makes sense.

[12:35] Steve: Yeah, it does. Another reason that your refund may have changed is that the tax laws are changing all the time. And so in I think, 2018, the Tax Cuts and Jobs Act, when that went into effect, that changed the way withholding was calculated for a lot of folks with w two jobs. And so that hit a lot of folks when refund time came, their refunds were lower just because the withholding was closer to an accurate amount during the year. If you were expecting a refund come April, that was a surprise. So there's those kind of things too, where if you've got a tax pro that you're working with throughout the year, they have to keep up on those tax law changes to keep their credential and so they're going to be able to keep you apprised.

[13:27] Tyler: Yeah. And I mean, in theory, some would argue that you don't want a giant refund at the end of the year. Right. Because that just means you've been withholding money that you could have been using for something else.

[13:38] Steve: Right. A lot of folks say you shouldn't give the IRS an interest free loan. I don't find that argument particularly compelling because I'm not getting much interest on the cash in my savings account anyway. But if you can put the cash to work during the year, as you said, that's a good reason to try and optimize that.

[13:58] Tyler: I was thinking more of buying something fun, but yes, sure, that's a valid use as well. Yeah.

[14:06] Steve: The other thing I will say is that if you are being audited or you're in a tax dispute with the IRS, you definitely want a tax pro and probably one that specializes in representation, not just filing taxes, but actually representing you to the IRS. They know how to do an offer and compromise or a payment plan, or they know how to deal with an audit, all those kinds of things. That's a place where TurboTax is not going to be particularly helpful for you. Hopefully that's not most of the folks that are listening to this. They don't ever get into a situation like that. But if that did happen, that's a good reason to hire a tax pro.

[14:43] Tyler: Oh, yeah, that makes sense. So tell me what that means specializing in representation. Is that like an advocate or an attorney type role or is it just like a tax professional representing me interfacing with the IRS so that I don't have to directly?

[15:01] Steve: Yeah, that's a great question. It is sort of like an attorney relationship. It's not there are tax attorneys who do representation, so that's a different thing. They can also do this. However, this is more like what you said at the end there. They're the ones working directly with the IRS on your behalf, so you don't have to be there for the meetings with the auditor sort of thing. They can handle that for you. That's one aspect of it. And then the other part is just being somebody that's in your corner that can, when you get the letter from the IRS, can interpret it for you and say, okay, this sounds scary, but here's what it actually means, and we can work through these things because I've seen this case 100 times already. These are the steps we need to follow. It'll be fine.

[15:48] Tyler: Okay, so if you're someone who has done your own taxes up until this point, but you're thinking you want to find someone to work with, a tax professional to work with, what options are available in terms of finding one? I mean, you mentioned HNR block before. We obviously know they're independent practices like yourself. What options are available, and how would you recommend finding someone to work with on your taxes?

[16:17] Steve: Good question. If you just need somebody that can do your taxes in April, just get it done, and then you don't need to talk to them for the rest of the year until next April rolls around. You can definitely go to a place like an HNar block or Jackson Hewitt or Liberty Tax where you can just walk in the front door and they've got a staff ready to assist you, that's totally fine. If you're looking more for a relationship that will last for multiple years, where you can come back to them or ask them questions during the year, that's more where you would want to go with an accounting firm or a tax professional who may even be operating a solo office. And when you're looking at that kind of a professional, you can start to look at their credentials. So the most common one is a CPA, a certified public accountant. That can mean a lot of things. A CPA could specialize in corporate audit or they could specialize in tax or a few other things. And so CPA just by itself doesn't necessarily mean that they're great at taxes, but it is a sign that they know accounting really well and they've done a lot of work to get that Credential? That's one. The other one that is very common is, well, that you will see a lot among tax professionals is called the enrolled agent. That's the one that I have, which is they had to pass a bunch of exams specifically on taxation. It doesn't go into corporate accounting or any of that kinds of things. It's just for taxation. And to keep up that Credential, they have to get a certain number of continuing education hours every year specifically about taxes. So if that's what you're looking for, an enrolled agent is a good person to look for on that side. Okay.

[18:16] Tyler: And would you just go online and Google it? Or is it best to talk to anything else, kind of talk to your network and find people that they would recommend? To me, trust is a big part of this. It's your finances. It's a big part of your life. It has an impact financially on your life. I think you want to feel comfortable with that choice.

[18:40] Steve: Definitely, I agree with that. You can certainly find a tax pro online. There are directories you can go to or a Google search or a local directory search, but I would say your chances of finding a good one go up. If it's someone that your network recommends that they already work with or that they know of, that you're more likely to find somebody that you can trust and have a long term relationship with. So I would say probably start there.

[19:09] Tyler: Yeah, that makes sense. How does pricing work for tax pros? I know there's all kinds of different services you mentioned, and so I'm sure that whatever services that you're interested in is going to influence the price. But for like a basic tax return like you were talking about earlier, just going in in April, dumping your pilot documents on there, getting your taxes prepared and submitted, is that typically like an hourly fee or like a one time fee? How is the pricing usually structured for something like that?

[19:36] Steve: For just filing your returns once a year? I've usually seen fixed fee, flat fee pricing for that, and the actual amount will vary a lot depending on what kind of a firm it is and what their credentials are and their experience level.

[19:53] Tyler: Okay.

[19:54] Steve: If you're looking for more of like an ongoing throughout the year, tax planning, tax advice kind of a relationship, those will either be hourly or they might be a monthly fee that'll depend on the advisor. My particular plans that I offer, I don't like to charge hourly because I don't think that aligns my interests with the client very well. So I tend to do either a flat fee for a well defined service or I'll do a monthly fee for, like if we're doing quarterly meetings to do tax planning and financials review, that kind of thing, that'll be like a monthly fee.

[20:35] Tyler: Great. I don't think I have any more questions.

[20:38] Steve: I guess I think that kind of wraps it up.

[20:41] Tyler: Yeah, sure.

[20:41] Steve: We had a whole bunch of reasons. There were two main ones where you don't want to do it yourself anymore. They're complicated enough. But then we had a whole litany of others after that. If you're being audited or if you need somebody who's plugged into a network of other professionals serving small businesses, that's a good reason to find an accountant. So great.

[21:03] Tyler: Yeah, thanks. I think that's a good summary.

[21:05] Steve: Okay, I guess that does it for this time. So thanks, everyone, for listening, and you can join us again for another episode of It's Not About the Money.

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