Tax time is here again. How should you file your taxes? Should you file your own taxes or hire a professional tax preparer? This depends on the complexity of your tax history, how much time you have to invest in filing your taxes, and how much you are willing to spend. To illustrate this, let’s compare two situations: me, a 23-year-old recent college graduate versus my primary dentist.
For me, filing taxes as a recent graduate has not been very complicated because of my one full-time job that gives me one W-2 every year. Because of the simplicity, filing my own taxes is more reasonable because of the cost compared to hiring a tax professional and the small amount of time needed to actually fill out a tax return.
However, for my dentist, his tax history is more complex. In addition to his primary trade, he also owns property that he rents to tenants and invests in securities. For him, a professional tax preparer would be better because of his various types of income: his active income from his dental practice, his portfolio income/losses from his security investments, and his passive activity income/losses from his rental property. Tax professionals can use their expertise and knowledge of different tax treatments for the various income sources that my dentist may not be aware of and can save him the trouble because he may not have the time to file the complex return. With this, a tax professional can provide year round advising and long term planning to see what can benefit him the most. With more complex returns, the taxpayer may think they know all the answers, but often they don’t know the questions to ask in the first place.
Conclusion
So, until I start my own business or start investing in real estate or securities, I will continue to file my own taxes because of the simplicity of the return, the little time I need to file my return, and the cost compared to hiring a CPA. On the other hand, my dentist should continue to have a trusted tax professional that can assist him year round and provide tax planning and advising.
If you decide that you need help, make sure you contact your LSL Advisor today at 714-569-1000.
Written by: Marlon J. Molina, Staff Accountant
