When Should You Hire A Tax Pro?

Right now…

Seriously though, modern tax software is very good, and many of them are reasonably priced, if not free. Most ask you all the right questions to fill in the blanks, get your tax return complete, filed, and a refund in your account, if that’s what’s coming for you. Many have audit protection or even CPA’s on staff to answer questions you might have. Whether it’s TurboTax, H&R Block, TaxAct, TaxSlayer, or Free File available through the IRS, they are all good, fairly intuitive, and likely less expensive than a tax professional.

If you are someone whose tax situation includes a simple W-2 and standard deduction it may not be worth the additional expense of a tax pro, on paper anyway.

That is because what these tax software packages don’t do, necessarily, is look ahead. They don’t ask questions to make sure you’re taking advantage of all the tax breaks available to you, such as those available through your employer. They don’t ask if you believe you’re better at managing your finances than the government and why you would give an interest free loan to the government. They don’t ask if you understand the implications of filing joint vs. separate on your student loan repayment. They don’t ask if you’re contributing the full amount to your HSA or getting the full match from your employer for your 401k. They don’t ask if you fully understand the tax ramifications of saving into 401k’s and traditional IRA’s vs. Roth 401k’s or Roth IRA’s. They don’t ask if you understand how you’re going to be taxed in retirement on the savings that is providing a tax-break today. They don’t offer to run a tax simulation for the rest of your life to better understand your lifetime tax bill, and how decisions today, or in a few years, can impact your lifetime tax bill.

In short, they don’t do planning. Here are a few examples of questions a tax pro might ask:

  • Did you know that an HSA provides you a triple tax benefit and is arguably the greatest retirement savings vehicle in existence? Yup. Contributions go in pre-tax, grow tax-deferred, and come out tax-free for qualified medical expenses. Some custodians even allow you to invest it. Imagine having an HSA as big as your Roth IRA, plus tax free retirement income from your Roth, tax free medical expenses, and the ability to use your HSA as a retirement income supplement should you need it (you do pay income tax on it at that point however).
  • Did you know that saving into a Roth 401k or Roth IRA vs their traditional counterparts can save you hundreds of thousands of dollars in taxes in retirement? Yup. And a good tax pro can help you evaluate which is better, and what the tax savings impact will be for you.
  • Did you know that converting your traditional IRA savings to Roth IRA, or 401k to Roth 401k if available, can also save you hundreds of thousands of dollars in retirement? Yup. A good tax pro can help you evaluate that as well.

Tax software can make your tax season simple and add value to you and your tax situation today. Especially if you are that “simple” W2, standard deduction, return. But a tax pro can add value to your tax situation forever.

Contact us to find out more.



Will Ellis CFP, Tax Advisor

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