Why hire a tax professional?

I love tax software. Today's commercial tax software packages help taxpayers find tax deductions, comply with tax laws, and reduce math errors. Many taxpayers get along fine using tax software and completing their returns at home by themselves. Why, then would someone hire a tax professional?

Because tax software does not know that sometimes there is more to the client than just numbers.

Complicated returns

Once your return gets complicated, it takes more than software to ensure your return is completed correctly. It takes an understanding of tax law to ensure the numbers make sense for the taxpayer's financial situation. Tax software asks you questions about your financial situation, but it does not verify that you understood the questions and answered the automated prompts correctly.

It does not take much, these days, to consider a return "complicated." A one-time distribution from your Roth IRA? Juggling child and dependent care benefits? Reporting capital gains vs. capital gains distributions? These are easy ways to trip up your tax return.

Changes in your financial situation

When you switch jobs, move, get married, have children, or retire, it's likely that you will have something new to deal with when it comes to taxes. A tax professional can help make your transition smooth and work with you to ensure that you avoid unnecessary tax complications that can, potentially, cost you money in missed deductions or penalties and interest.

One of the most dramatic life changes most individuals make, tax-wise, is the decision to start their own business. Many new business owners who have previously been employees will benefit from some simple tax guidance to prepare them to manage their new tax responsibilities.

Love letter from the IRS?

Have you been contacted by a tax agency over a tax return and don't know how to proceed? Do you feel that the amount they have assessed against you is incorrect? Some times you can't even decipher the language in the letter. Don't worry, that's normal. The IRS is trying to be more user friendly, but it's a difficult task and there are still barriers to understanding. This is where a tax professional can help, and it may not even cost very much! Many times you save yourself time and money in interest and penalties!

The first thing you need to do is open the letter, read it, and do not ignore it. Many times the issue is a simple misunderstanding or a small omission from your tax return that can be easily addressed with a response back to the tax agency.

The most harmful thing you can do is ignore the letter. Even if it ends up that you owe money, a tax professional can help you set up a payment plan and get you on the path to resolution. You will reduce the penalties and interest that you owe if you address the matter ASAP.

If you bring the letter to a tax professional, you might be able to find a solution in a one-hour conversation. A good tax professional will also want to review the tax return in question and speak with you about your tax situation. I sometimes will send my clients off with a "to do" list instructing them how to resolve the matter on their own, and sometimes I will manage the response and handle the communications with the IRS. This depends on how complicated the tax situation is and whether the taxpayer prefers some help.

Building a relationship

As a small tax firm, I have seen the benefit of building a working relationship with your tax professional. My clients become more than a tax return, because I see their history and I can help them build a future. I understand their goals, and where they are headed, and I can help put their numbers in the context of their lives. I know what to look for, from year to year, and work to make sure we don't miss anything. I can help them plan for future events like IRA withdrawls and conversions closer to retirement.

A tax professional is an essential part of your wealth-planning team!