PPP and COVID-19 Tax Updates and Information

Blog

Open Mon-Fri, 9am-5pm
Office: (212) 279-9800
info@robertprussocpa.com

Client Portal

Ask Bob: Should I Hire an Accountant or Do Taxes Myself? (7 FAQs)

Posted on June 9th, 2020

The big question: Is hiring an accountant to do my tax return really worth it?

At this time of year, we’re all bombarded with ads promoting the simplicity and savings of using online tax software or walk-in tax prep centers. For people with a simple W2 form and maybe an investment account or two, these services will get the job done.

However, there are many situations where hiring an accountant can save you thousands of dollars, help you avoid an audit and fines, and set you up for an even more profitable year ahead. The question is: which category do you fall into?

In our latest edition of “Ask Bob,” we answer frequently asked questions about whether it’s really necessary to hire an accountant, or if you can go it alone. Here’s what Bob had to say…

Question 1) Even though I just have a single W2 form to file, I donated about $5000 to different charities in 2019, and have many miscellaneous itemized deductions from my job like gas mileage that wasn’t reimbursed. I think I should hire an accountant to help me file these things as well, what do you think?

This is where the saying “you don’t know what you don’t know” comes in.

In 2018, the IRS eliminated the ability for individuals to take many miscellaneous itemized deductions – like unreimbursed job-related expenses.

In addition, while you can still itemize donations, you’d have to be very charitable to surpass the new, higher standard deduction. In 2019, that standard deduction is $12,400 for individuals – and $24,800 for married filing jointly.

If you tried to hire an accountant here at Robert P. Russo CPA PC, we’d tell you that you’d be better off simply doing your own taxes since you’d likely just have to file the W2 form. When in doubt about hiring an accountant, feel free to contact us and we’ll give you an honest answer.

Ultimately, the tax return itself is not the essence of why you should hire an accountant. What matters most is the advice and tax planning strategies a qualified CPA can provide. An accountant can even prevent you from running afoul of the law!

 

Question 2) I never realized tax planning involved legal issues. Can you explain how hiring an accountant could keep me on the right side of the law?

At Robert P. Russo CPA, PC, our team is always busy – researching the latest tax rules and regulations. Many of our clients, both business owners and individuals, have no idea many of these exist. Without hiring an accountant, you’re at risk of fines, penalties, audits, and in worst case scenarios…jail time. Skip ahead to Question 4 for an example of how tax planning involves legal issues.

Question 3) Someone told me if you are an employee – not a business owner – there’s no good reason to hire an accountant, only business owners need them. Is that true?

Sorry, that’s bad advice! For example, one of our clients here at Robert P. Russo CPA, PC is a young woman who works for a well-known, private tech company – she was smart and realized she needed to hire an accountant. She’s an employee with a simple W2 form, but the company gave her a large amount of stock options. How she manages those stock options when the company goes public can have an impact of tens of thousands of dollars.

Another example of someone who is “just an employee” but should hire an accountant for help with their taxes would be anyone who’s inherited or been given investment funds, cash, property or anything else of value. Or, if you work or live abroad, it’s important to hire an accountant because yes, you still need to file a U.S. tax return and things get complicated fast.

Question 4) Yes, I’m a business owner. But my operations are so simple, hiring an accountant is NOT worth it. I am a graphic designer in New York City with just one independent contractor working for me. I file their 1099 directly with the IRS. I take typical deductions. I’ve never had a problem. Why bother with an accountant?

Remember what I mentioned earlier, there are many laws that impact how businesses should operate from a tax perspective. Here’s a cautionary tale of why hiring an accountant – preferably a CPA – is the right move:

Even though Robert P. Russo CPA, PC serves clients nationwide, we are based in NYC. New York State has intricate regulations for workers compensation. You say you have one contractor? That can still be a big problem, at least it was for someone who came to us recently…

Unfortunately, this business owner didn’t bother hiring accountant when starting his business. He had a handful of independent contractors. He had to lay off one of them, and this person went to file for unemployment…even though he was an independent contractor!

This business owner was then contacted by the Labor Department and was forced to pay over $40,000 in workers comp. Sadly, we have heard of many other cases like this – where someone tries hiring an accountant but the damage has already been done. Be smart, start by talking to a qualified accountant.

Question 5) As the owner of a small, home-based business, I heard that taking a home office deduction on my tax return – will increase my chances of an audit. What’s your response to that?

Sadly, when hiring an accountant here at Robert P. Russo CPA, our new clients often share this myth with us. But it’s just that, a myth.

Taking a home office deduction will not raise a red flag to the IRS. That’s the danger of NOT hiring an accountant, you start seeking advice from well-meaning friends, the Internet, you name it. You develop bad habits. And in the case of not taking a home office deduction, you miss out in thousands of dollars in tax savings over the years.

However, what might trigger an audit is putting those home office deductions into the wrong place on a tax return, or lumping many items together. The bottom line is this, hiring an accountant will lower your chances of an audit – and improve your odds of success if you ever are audited.

Question 6) I’m self-employed and have been doing my own taxes for a few years. Why should I hire an accountant now?

When it comes to your business, it’s not just about plugging numbers into a tax return. Anyone can do that. It’s how you arrive at those numbers that matters, and that’s where an accountant – preferably a CPA – comes in.

For example, in 2018, the Tax Cuts and Jobs Act (TCJA) dramatically altered the tax landscape for businesses of all sizes – including LLCs and sole proprietorships. Most notably, many entities were eligible to take a brand new 20% deduction on qualified business income (QBI) as outlined in Section 199A of the TCJA.

Easy, right? If your small business had $211,000 of QBI in 2019, you’d simply give yourself that nice 20% deduction. You think, who needs to hire an accountant to tell me I’ll save $42,200 on my taxes?

In this case, not hiring an accountant just cost you $42,200.

Yes, you lost out on over 40 grand in tax savings because you thought you knew everything. A good CPA would have told you that the IRS sets thresholds for taking QBI – and those thresholds change annually. In 2019, if your QBI was over the threshold of $210,700 for those filing single, you were ineligible to take a single cent of that new 20% deduction. If your QBI had surpassed $160,700 but fell under $210,700, you’d still be eligible for at least a small portion of that 20% deduction.

Question 7) So all hope is lost because I didn’t hire an accountant?

Not necessarily. A CPA may be able to find additional and completely legal ways – like these 6 hidden tax deductions – to lower your QBI so it goes below the threshold. For example, you might be able to make a contribution to your SEP IRA before April 15th. Still, by hiring an accountant at the beginning of the year, you could have made strategic tax moves to ensure you’d get the full 20% deduction and not have all this extra stress around tax season.

Of course, it’s your choice as to whether or not you want to hire an accountant. Any good accounting or CPA firm will be happy to do a brief, complimentary consultation to understand your tax planning needs. If you’re on the fence about hiring an accountant, you’re welcome to contact our team here at Robert P. Russo CPA, PC.

Tags: ,

« »

Comments are closed.