At what income bracket is it worth hiring actual tax accountants?

February 4, 2015 4:28 PM

I know that if you plan well with accountants, you can reduce your tax profile. At what income bracket do you actually get enough advantage from doing this and finding all the weird corner hidden deductions to well cover the expense of hiring the accountant in the first place?

Obviously if you're a billionaire this is de rigeur, but at what point should middle class/upper middle class people stop doing their own taxes and start hiring someone else to do their taxes for them in order to save money? Assume you are looking to hire someone who is creative but not actively crooked.

posted by corb to Work & Money (16 answers total)

When you have enough goofy deductions to warrant it.

If you end up owning two homes, or rental property. If you buy and sell stocks. If you have an inheritance or win the lottery. If you sell your MILs house for nothing to her boyfriend so that you can get your damn name off the deed (guess how I know that one.) If someone is doing 1099 work that has a lot of expenses that can be deducted.

It's not about income, it's about the number of forms you'll need to file and the complexity of your return.
posted by Ruthless Bunny at 4:38 PM on February 4, 2015 [17 favorites]

Agree with RB, it's not about income. I do have an accountant do my taxes, primarily because of stock stuff and just peace of mind (cost of that vs. my tax bill is so tiny I don't worry about it). But I doubt it's saving me any money.

It depends on whether you _have_ any "weird corner deductions" and the like. Simply making a lot of money does not mean you do (I have very very few despite my income), it depends heavily on your circumstances.
posted by thefoxgod at 4:49 PM on February 4, 2015 [2 favorites]

It's not about income, it's about the number of forms you'll need to file and the complexity of your return.

Though it is about income if you're spending two days hunting through shoeboxes for receipts and reading the fine-print of IRS publications when you could be doing Actual Work For Money. That's more the old question of 'what monetary value (and intangible value) do you place on your time?' than 'how can you unlock the IRS Bonus Level?'
posted by holgate at 4:49 PM on February 4, 2015 [4 favorites]

Agreed, the first time I had a professional do my taxes I wasn't earning much but I had bought a house and was pretty sure I did not know the best way to optimize the stuff involved in buying the house (cashing out some investment accounts and etc) and was going to cost myself some more money. So if you are just a standard married wage-earning couple, you can probably do your taxes the straight way with TurboTax and it's all good.

However once you have a kid, self-employment income, a rental property, investment accounts, a disabled family member you take care of, a divorce, a farm, an inheritance, a very high (or very low but not broke) income, it might be worthwhile to hire someone. I didn't hire someone again to do my taxes for almost 20 years until my dad died and I had a very complex tax situation all of the sudden. And one of those times in-between I screwed something up (honest mistake) and the IRS contacted me about it and we worked it out. So some of this is also how comfortable you are owning your own mistakes and how much you'd prefer or be comfortable leaving it in someone else's hands.

My taxes are now solidly out of my ability to manage them (because of my dad's estate and a bunch of things I own in tandem with my sister) and we share a tax guy to manage it all. He can also do things like give advice on things I can do NEXT year to help my bottom line tax situation and I appreciate this advice as much as the actual paperwork parts of it.
posted by jessamyn at 4:51 PM on February 4, 2015 [8 favorites]

I did my own taxes for many years - it didn't take that much longer to do it myself than it did to organize everything for the accountant. (Accountants do NOT want you to just show up with a shoe box!) I agree that it tends to be much more about the deductions than the income.

There are also some things where you can just pay for an hour of time to find out what to do and then go ahead do the paperwork on your own - for example when trying to figure out how to handle a family loan.

If you want to be legal but aggressive about self-employed or small business or rental properties, get an accountant. If you need to keep an eye on AMT or have lots of income that require you to file estimated tax payment in unpredictable amounts, get an accountant. I thought buying and selling stocks was straightforward unless you have stock options, RSU. Some complex investments have complex paperwork so you might want help (either for an hour or to do the return)
posted by metahawk at 4:55 PM on February 4, 2015

I think it's worth doing at least once if you can afford it. Do your own tax calculations first (I assume there is some online software in the USA as there is in Australia, where you can do the tax return but not yet submit it.) Then hire a tax accountant to do it for you, and compare the amount of taxes their calculations end up with to what you'd have to pay by your calculations. Then you know if it's worth doing for future years.

I have a fairly straightforward tax situation and the one time I hired an accountant he got me about $200 more in refunds than I had calculated, which paid his fee, plus a little bit over. But I was uncomfortable with how he stretched the truth a little, even though I hear it's standard ("you probably drove around to different banks to compare their rates, so we'll deduct some petrol expenses against the interest you earn on your savings."
"Yeah, no I really didn't. I just compared banks online."
"I'm sure you've just forgotten exactly what you did.")

So I've gone back to doing it myself. But I'm sure other people have different experiences.
posted by lollusc at 4:56 PM on February 4, 2015 [1 favorite]

I'm a straight arrow when it comes to my taxes, but I like the idea that if I get audited for some reason (even routine selection) my tax accountant also has his signature on there and I wouldn't be alone in defending my return with the IRS. Plus the older I get, the more complicated my finances get and it's great to have a professional's advice before I make an uninformed decision that might bite me at tax time. It's worth a few hundred bucks a year for me.
posted by cecic at 5:00 PM on February 4, 2015 [3 favorites]

I would say to a certain extent in terms of finding hidden deductions its got more to do with net worth than income per se. There aren't that many secret deductions to be found based just on income, but when it comes to investments outside the bog-standard retirement vehicles, large charitable donations, etc. there are definitely ways to approach it that can save and/or cost you in taxes. So if you've maxed out the regular retirement savings vehicles available to you and are starting to get into investing in non-tax-advantaged accounts, you would benefit from a financial planner to steer you in the right direction and an accountant to do the dirty work when tax season roles around.
posted by drlith at 5:02 PM on February 4, 2015

In addition to what others say, an accountant is much cheaper than most couples therapists and divorce attorneys. Just sayin'.
posted by cestmoi15 at 5:18 PM on February 4, 2015 [3 favorites]

I hired an accountant as soon as I had profession-related deductions. Like everyone else has said, it's less income and more "yikes, there are thirty different forms I need to fill out."
posted by thomas j wise at 7:10 PM on February 4, 2015

+1 it's not about income but about whether it's W-2 income or more complicated stuff. I don't make much money but I have an accountant do my taxes every year because I own a rental property and that complicates things enough to warrant the $300.
posted by rabbitrabbit at 7:34 PM on February 4, 2015

Yeah, for me it's not about income, it's about complexity and the likelihood if I'm audited I want to sit there alone and explain myself, versus explaining myself with the backup of someone with a certification that says they know how to prepare taxes and didn't allow me to commit accidental fraud. Any year I've had a real estate transaction or more than one country's taxes to do or an estate to manage, I've shelled out for an accountant. It doesn't save much in terms of the going-through-receipts thing - you still need to find all the evidence of your expenses and arrange it in a way that the accountant has some idea what they're looking at - but it does in terms of having someone who knows the rules.
posted by gingerest at 7:39 PM on February 4, 2015

Anything foreign. Income earned, taxes paid, residence.

The foreign earned income exclusion in 2013 was $97,600, but you almost certainly need an accountant before you get to that level, because different things are taxable in different ways in different countries.
posted by one more dead town's last parade at 8:16 PM on February 4, 2015 [1 favorite]

My husband works out of state, I do not. Just dealing with 2 different state income taxes makes it worth having an accountant.

Also, last year I had an issue with a former employer and screwed up taxes. I was able to go to my accountant with the info and have him look at old returns that he had prepared and figure it out. Saved me time and energy.
posted by Biblio at 8:40 PM on February 4, 2015 [1 favorite]

Keep in mind that tax prep fees are deductible. I was freelance for many years, working from home, so I just got in the habit of having my taxes done by a CPA. The habit persists now that I am a salaried W2 employee, still working from home (and taking the home office deduction). It's more than worth it to me to not have to do it myself.
posted by caryatid at 9:28 AM on February 5, 2015 [1 favorite]

I swear my CPA does a quick estimate of how much money he saved us in taxes and then charges us half. We started with a CPA when I became uncomfortable with my ability.
posted by raisingsand at 5:19 PM on February 5, 2015