Do I Need a Tax Accountant?

When You Might Need a Tax Accountant

A tax accountant can provide valuable expertise when your taxes are complex. Among the many circumstances that might motivate you to bring in an accountant:

You Own a Business or Are Self-Employed

Business owners, self-employed people, freelancers and gig workers all need to track their income, expenses, profits and losses for the year and report this information on their personal tax returns. You may need to file a business return or Schedule C, and may need to handle W-2s and withholding for employees or issue 1099s for independent contractors. The added complexity—and sheer volume of work—can make working with an accountant worthwhile, though also more expensive.

Learn more: Tax Deductions to Claim If You're Self-Employed

You Buy and Sell Investments

If you invest in stocks, bonds, mutual funds, cryptocurrencies or collectibles, an accountant can help you sort out your short- and long-term capital gains (or losses), dividend or interest income, and special requirements for investments like collectibles. They may also advise you on using tax-advantaged accounts to invest your money tax free or on a tax-deferred basis.

You Have Foreign Investments or Income

Income from foreign investments may require additional tax filings; money you make outside the U.S. may be eligible for the foreign earned income exclusion. In either case, having the expertise of a qualified tax accountant can help save you from paying more tax than you owe or incurring penalties for failing to report your foreign income correctly.

You Own Rental Property

If you own commercial property or rent out a personal residence, your net income is taxable. However, tracking revenue, documenting expenses and complying with IRS requirements can be challenging. In addition to doing your taxes, an accountant can help you set up your bookkeeping so you're better prepared at tax time.

You've Had a Major Life Change

Getting advice when you've undergone a major life change can help you navigate tax consequences and set you on a solid course for the future. Consider talking with a tax accountant if you've recently gone through one of these changes:

• You got married. Marriage changes your tax filing status. It may also change your tax strategy as you buy a home, have kids, save for retirement and more.
• You welcomed a child. You may be eligible for the child tax credit, adoption tax credit, child and dependent care credit and additional benefits under the earned income tax credit.
• You inherited money. Although there's usually no tax on an inheritance, you may benefit from advice on selling an inherited home, dealing with inherited retirement funds or dealing with estate taxif you're the executor of an estate.
• You bought or sold a home. New homeowners may enjoy tax breaks, including the mortgage interest deduction, state and local tax deduction and more. If you sold your home, you may want help reporting capital gains.
• You've retired. Retirement changes your lifestyle—and your tax situation. A tax accountant can explain how your Social Security and retirement income are taxed, and answer questions you may have about health savings, annuities, life insurance, charitable gifts or annual gifts to family.

Compare tax preparation services

You could save time preparing your taxes, and get assistance maximizing your refund. Plus, many services provide audit assistance to give you confidence when you file.

When You Might Not Need a Tax Accountant

In short, you probably don't need a tax accountant if you're comfortable doing your taxes without one. If your tax situation is simple—or you're very proficient at managing your finances—tax preparation software may be all you need to e-file your taxes quickly and accurately.

Alternatives to Hiring a Tax Accountant

You may also decide you'd like help but don't need the full benefit of hiring a CPA. If you'd like help with your taxes but suspect a CPA might be overkill (or off the mark), consider these alternatives:

• Enrolled agents (EAs): These professionals are licensed by the IRS. They undergo specialized training and pass a three-part proficiency examination to earn the EA designation.
• Certified tax preparers: Tax preparers who have an IRS-issued prepared tax identification number (PTIN) are authorized by the IRS to prepare federal tax returns, though their training and experience can vary.
• Tax attorneys: A tax attorney may provide tax preparation services. They can also represent you in court if you're being sued by the IRS.
• Software support: Some tax software programs allow you to consult with a tax advisor if you have questions about your return.
• Free help: The IRS partners with software providers to offer free tax preparation software to taxpayers with adjusted gross incomes of $89,000 or less. Low- or moderate-income households may qualify for free tax preparation and filing with the help of IRS-certified volunteer tax preparers. Search for help finding Volunteer Income Tax Assistance or Tax Counseling for the Elderly, where you can drop off forms or meet with a counselor one on one.

How Much Does an Accountant Cost?

The average cost of having an accountant prepare an individual tax return (Form 1040) is $220 using the standard deduction and $323 if itemizing. Accountants who charge by the hour for tax preparation have an average hourly rate of $174. This pricing data is from the National Society of Accountants' 2021 Income and Fees survey, the most recent available.

Pricing varies based on the complexity of your return and the number of IRS forms that need to be completed. For example, you'll pay more if you have your own business, own rental property, have investment income or claim the earned income tax credit. Accountants may charge additional fees for helping you with an audit or providing additional accounting help. Ask about pricing upfront when you're interviewing tax accountants; they should be able to provide an estimate of charges.

Benefits of Hiring an Accountant for Taxes

Hiring a qualified accountant to handle your taxes saves you time and brings a high level of expertise to the task of preparing your tax return. A good tax accountant can help you with a number of tax-related priorities, including:

• Maximizing deductions and credits: Accountants know which tax breaks you may be eligible for, so you don't overlook opportunities to save.
• Sorting out eligibility and documentation: Accountants can also help you understand eligibility requirements and explain what documentation you need to back up your deductions and credits.
• Reducing errors and omissions: With expert help, you may be less likely to make mistakes that can lead to penalties, such as claiming the wrong deduction or failing to report all of your income.
• Dealing with an IRS audit: A CPA can represent you if the IRS questions your return, audits you or has collection issues. Tax preparers who aren't CPAs, enrolled agents or tax attorneys have limited practice rights.
• Enjoying ongoing support: Whenever you have tax questions or are about to make a major financial move (like buying a home), your accountant can offer advice based on your particular situation.

Learn more: Tax Breaks for Homeowners

How to Hire an Accountant

Finding the right tax accountant is key, but where do you start? The stakes are high. Your tax accountant is privy to personal financial information and is responsible for helping you comply with the law. Follow these three steps to find a tax accountant whose skills and integrity you can trust.

1. Ask for Referrals

Ask friends, family and colleagues if they have recommendations. If your close contacts don't turn up any leads, consider asking business owners in your community or your local chamber of commerce. A CPA who has worked with someone you trust is more likely to be legitimate than someone you encounter randomly.

Tip: Beware of tax preparers who charge a flat fee for filing and promise a large refund; the IRS warns that tax preparers who seem too good to be true may, in fact, be scammers. A fake tax preparer may steal your identity and file a fraudulent return in order to collect your refund.

2. Verify Credentials

Use the IRS' searchable directory of federal tax return preparers to verify that a tax accountant has an IRS PTIN and is authorized to prepare federal tax returns. The directory also shows a tax preparer's certifications, including CPA credentials. You can also use CPAverify.org to verify credentials.

3. Get Specifics

Find out more about a prospective provider's experience, fees and process for working with clients. Ask about your accountant's security practices. If possible, check with the Better Business Bureau or social media review sites for any additional intel on clients' experiences.

Learn more: How to Find a Tax Advisor

Frequently Asked Questions

The Bottom Line

One final bit of advice: It's easier to decide whether or not you need a tax accountant when tax day isn't right around the corner. If you want to attempt doing your own taxes, start early, while there's still enough time to get help if you need it. Or, if you know you want to work with an accountant, start looking for one during the off-season. They'll have more time to meet with prospective clients when they aren't buried in deadlines, and you'll have more leisure to determine whether their practice and experience are a good fit.