Tax software does a good job of breaking down tax preparation into manageable bites. It will alert you to money-saving breaks, flag potential errors, do the math and let you e-file your return. And if your adjusted gross income for 2014 was less than $60,000, you can use the IRS Free File program, a public-private partnership that allows you to prepare and e-file your federal tax return at no cost.
But sometimes you need to call in a pro. If your tax situation is complicated, you could miss out on tax breaks that could save you hundreds or even thousands of dollars. Worse, you could make mistakes that could trigger an audit. Here are some instances when you should get help from a tax preparer:
1. You’re self-employed or own a business. Taxpayers who work for themselves are eligible for a long list of deductions that do-it-yourselfers might overlook. They’re also subject to more scrutiny by the IRS. A tax professional can identify appropriate tax breaks and help you maintain records that will withstand an IRS challenge.
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2. You own rental property. The rules governing tax treatment of rental property are byzantine. In addition, this is another area that tends to attract IRS attention, particularly if you report large rental losses.
3. You have a large investment portfolio. The Affordable Care Act imposed a 3.8% surtax on unearned income for single filers with modified adjusted gross income of $200,000 or more, or married joint filers with MAGI of $250,000 or more. An experienced tax professional can help you take advantage of tax breaks that will lower your MAGI and recommend changes that could shield you from the surtax on your 2014 tax return.
The right credentials: If you decide to get help, be aware that anyone can call himself or herself a tax preparer. Consequently, “it really is consumer beware,” says IRS taxpayer advocate Nina Olson.
You can get a list of local certified public accountants from your state’s CPA society. There, you can also find out whether complaints have been filed against an individual. Some CPAs also have a personal finance specialist (PFS) designation, which means they can provide advice on investing, retirement and estate planning.
Another option is an enrolled agent. Enrolled agents must pass a rigorous test and meet annual continuing-education requirements, and they are licensed to appear before the IRS. To locate an enrolled agent, go to the Web site for the National Association of Enrolled Agents.
Before hiring a preparer, ask how he or she sets fees. Some bill at an hourly rate; others charge a set fee based on the complexity of your return. Get this information in writing.
You should also make sure the tax preparer will be around after April 15, Olson says. Some preparers set up shop during the tax season and disappear after the tax deadline. That could be a problem if the IRS has questions about your return.
This item was originally published in the April 2014 issue of Kiplinger's Personal Finance.