Dec 27, 2008

Should I Hire an Accountant To Do My Tax Returns?

Read the Her Every Cent Counts Taxes Series

Since tax season is right around the corner, I'm trying to figure out if I should hire an accountant to prepare my tax returns, which one to hire, and how much it should cost me. I've pretty much decided I need to hire someone to handle my taxes for me this year, as I'm going to be taxed heavily as an independent contractor and need help finding all the deductions I can take.

Then again, it looks like hiring a tax accountant will cost me $350 - $450. Ouch. That's a lot of money. I'm sure the work they do is worth that, but it feels like I should be able to do all the work myself. An online tax software would cost me $100, so even if I missed out on $300 in deductions I'd still end up breaking even. And how much money in deductions am I really going to get? I can't take a housing deduction, I've never lived in a space big enough to qualify for that. My "business" expenses are minimal - maybe I could deduct hosting costs for my promotional website, and mileage for the route to and from the office. Other than that, I don't know what I can deduct.

The complicated parts of my return are going to be from my various investment incomes. God, that's going to be a nightmare. I'm not sure how to handle Prosper (luckily I only have 10 investments out... but it sounds like the earnings on each one will have to be taxed), and then there's Sharebuilder and those pesky dividends that count as income even though they're long gone now, and my Vanguard dividends (most are in my Roth but I also have a small regular brokerage account through them, which is supposed to be my grad school or house money), and then there's my CD from bank of america and various other places I've earned income throughout the year. Yea, that's where it gets complicated.

But I worry that because it does get complicated a tax accountant will have to take longer than his minimum 2 hours to complete my returns. They'll end up costing more like $500 or something, which is a pretty big chunk of my income considering so much of it's going to taxes (15% self employment tax on top of everything else, yuck.)

I've reached out to 3 local CPAs, and found that their rates range from about $300 for a return (the cheapest) to $400/$500. I wonder if the more expensive ones will save me more money, or if it ultimately doesn't matter because any extra money they'd save would be eaten up in their fees.

Here are my 3 options thus far:

  • CPA #1 My fees for income tax preparation fees are at $175 per hour. Most returns I prepare are in the $400 to $600 range. The tax preparation fee is all inclusive as it includes meetings and follow up questions and other assistance you may need. Also, I don't charge any additional fees for questions during the year. Of course, if you need assistance that involves significant time, it will involve additional fees, and I will let you know this in advance.

  • CPA #2 I charge $160 per hour plus out-of-pocket costs and there is a two hour minimum for tax preparation. 2-hours covers a basic return for an itemizer typical family. I can get you an appointment. (I followed up and inquired what out-of-pocket costs would be...) Tax software license access fee, copies & supplies, postage & misc. runs around $65 per individual tax return.

  • CPA #3 I'd be happy to help you with your 2008 taxes. It would cost around 300 for a schedule C. That includes preparation & the initial meeting. We should meet before the year end to maximize deductions.

If any of you are 1099 out there, or have been in the past, do you use an accountant to do your taxes? How much income merits hiring a tax accountant to deal with your returns?



5 comments:

her every cent counts said...

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MEG said...

Oh my gosh you do NOT need a CPA!!! Your returns are NOT complicated; it sounds like you just have a few 1099s to enter (and Prosper will send you one too). Please use Turbo Tax - it does NOT cost $100, I pay like $30 each year for the new version and for filing.

I have Vanguard too, and you can get a discount by purchasing TurboTax from their website - AND the online version automatically pulls all your 1099 info from Vanguard, Sharebuilder, and any other account you have online.

Turbotax is amazing and simple and it walks you through dozens of questions one by one to make sure you take every single deduction that you can. And honestly unless you have your own business or a rental property there aren't that many you can qualify for. You aren't going to "miss" hundreds of dollars in deductions.

Even if you want to have somebody else do it if you're really freaked out to do it online, you don't need a CPA. Run down to H&R block and pay like $50. They'll ask you all the same questions as TurboTax and a CPA would. CPAs rarely save you the money they charge, especially if you don't have a lot of business income or complicated investments that don't come with 1099s.

her every cent counts said...

Meg - how did you get turbotax so cheap? Last year I used it for state and federal taxes and it cost about $120.

TStrump said...

Wow - I guess tax preparation fees are more in the US.
I don't have too much US tax experience, but don't you get slips for each type of investment income?
If that's all you have, then you probably wouldn't need an accountant (I am one, btw)
If you're going to pay someone, find someone who will be with you in the long run.
It's too easy for us tax-preparers to miss stuff if we don't know your entire history from year to year.
Remember, as the saying goes, you usually get what you pay for.

Anonymous said...

Your tax are not complicated at all. If your income is below a certain level, you can get taxcut or turbotax for free.

Also, deductions do not reduce your taxes dollar per dollar. Depending on your tax rate, an accountant would need to find thousands of dollars in additional deductions for you to break even on their fee.

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