26 May Should I hire a tax professional?
Q. My tax return has always been simple and I do it myself, but I hear I can get value-add by using a CPA. What would I get out of it?
A. You could get a huge value-add by hiring a CPA or an Enrolled Agent (EA) instead of doing your own taxes.
These professionals have mandatory continuing education requirements, so they will always be on top of changes in tax rules, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
Most people who aren’t in the profession stay that current just to prepare one tax reutrn.
Kiely offered this example.
When the Affordable Care Act came along, it came along with some additional tax forms.
“There are three versions of form 1095 plus form 8962 `Premium Tax Credit,'” he said. “If you do not have medical insurance coverage, you are subject to a tax penalty that could be as high as $5,000. Maybe it’s time to go to a pro.”
Kiely said getting a written notice or statement from the IRS can be unnerving if you prepared your own tax return. When the notice demands payment, they can be downright scary, he said.
If you’re using a pro for your return, you’re not alone.
Kiely said he has clients who send him IRS notices without even opening the envelope.
“I scan every piece of paper into my computer the client gives me. I often reply to the IRS directly because I probably have what they want,” he said. “Sometimes I have to back to the client to get copies of cancelled checks. Either way, I handle the notice for my client. Frequently I don’t even charge for this service.”
And then there is the dreaded audit notice.
Kiely said going to an IRS audit alone is like representing yourself in criminal court, and he doesn’t recommend it.
He said he’s been a CPA since 1982 so he’s represented quite a few clients in tax audits.
“A professional knows what kind of evidence is required at an audit,” Kiely said. “We know what questions will be asked and which ones are not very likely.”
For example, if you are self-employed, he said, the IRS will ask to see your personal bank account statements. The client usually asks what that has to do with your business. The IRA auditor has to satisfy themselves that you aren’t receiving cash that has not been accounted for on your tax return, he said.
Kiely offered one final thought on the value of using a professional tax preparer. They usually know what you are eligible to receive such as foreign tax credits, college credits and low income credits. Those tax savings often make having a pro worthwhile and cover the cost of hiring someone in the first place.
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This post was first published in May 2016.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.