Do you need a CPA? Or will a regular accountant do?
- Now that you’re a homeowner, your taxes may have gotten more complicated. And you may be asking yourself, “Do I need an accountant?” And if you do, should you hire a certified public accountant (CPA)? And what’s the difference between a CPA and a noncertified accountant?
Plus, you may be one of many people who worked from home and wonder if you can deduct some of your home office-related expenses. Or you may have moved out of state or tapped into your 401(k) for supplemental income.
Here’s some information to help you.
The Differences Between Tax Experts and Other Options
First you need to know there are different types of tax experts. And not all accountants are CPAs. So, if you’re thinking that a licensed independent CPA and someone at H&R Block or Jackson Hewitt (or your buddy who studied accounting in college) are pretty much the same, don’t count on it. Basically:
- An accountant is someone who studied accounting and works in the field.
- CPAs are accountants who passed a rigorous examination and must comply with stringent continuing education requirements from their state board on a regular basis. The designation usually requires a degree. Not every CPA specializes in taxes.
- An enrolled agent, or EA, is a tax specialist who has been certified by the IRS. Being an EA doesn’t require a degree like a CPA does. But it does verify they know the tax law.
- A tax preparer at pop-ups like H&R Block or Jackson Hewitt is trained on tax software to help taxpayers file their returns. They aren’t required to be CPAs or EAs, but some are very knowledgeable about the tax rules.
- Only CPAs and EAs can legally represent you if the IRS challenges your return.
There’s nothing wrong with visiting a pop-up preparer like H&R Block if your return isn’t all that complicated, says Cathy Derus, CPA and founder of Brightwater Accounting in Illinois.
“It’s when you start generating other income — perhaps you launch a business or own rental property — [or experience a big financial change] when it makes sense to ask for a little extra help,” she says.
Several software programs are available to help you prepare your own return and save money, says Tai Stewart, accountant and owner of Saidia Financial Solutions in Houston. “They’re good for people who have simpler returns — they’re in their first few years of work or single with no kids. The programs ask questions to make it easy to understand the directions and input your data.”
But if you’ve bought a home, it gets more complex, Stewart adds. “That opens you up to special credits and deductions and requires more recordkeeping. If you mess something up or miss out on deductions, it can cost more than hiring an accountant would have.”
When It’s a Good Idea to Hire a Tax Pro
When you buy your first house. Many of the expenses related to buying a home and having a mortgage are deductible. But only if you have enough deductions to itemize.
When you move to a new state. There’s a good chance you’ll have to file two state returns for the year you move. And each state is a little different in terms of state tax owed — zero in some states, a flat amount in others, and graded by income bracket in most.
When you become a landlord. “When you own investment property, you become a small business owner,” says Stewart. That means new records to keep and a new tax form, Schedule E, to complete.
When you buy a vacation property. Especially if you rent it. And especially if it’s in a different state.
Avoid the onerous record keeping for the regular home office deduction with the simplified method — $5 per sq. ft. up to 300 sq. ft., capped at $1,500. Trade-off: Much less paperwork, but possibly a smaller deduction, too.
When you work from home and are self-employed. Potential money-saving deductions can vary widely depending on the type of business and how much space the office takes in your home.
“If you have a home office, you can deduct for the square footage you use for work as well as a portion of your utilities, mortgage interest, and property taxes,” says Stewart.
So, How Much Do Accountants Cost?
With H&R Block, regardless of whether you choose virtual, in-person, or drop-off services, the base cost is $85, and state fees are added on.
The average cost of hiring a CPA to prepare and submit a Form 1040 and state return with no itemized deductions in 2021 was $220, while the average fee for an itemized Form 1040 and a state tax return was $323, according to Investopedia. Costs increase along with the complexity of the return.
Pricing is variable, so it’s best to check directly with the options you’re considering for the most up-to-date information.
You can definitely DIY in all these tax scenarios and save the fees, but with CPAs and EAs, the extra cost may be worth it. Especially if you run your own business. Or you own more than one home.
“An accountant can help you analyze your spending choices and even act as a consultant,” says Stewart. Best of all, they’ll be by your side if the IRS ever comes after you. That alone could be priceless if the time comes.
Oh, and one last tip: If you decide you want to hire a CPA or an EA, it’s best not to wait until the last minute. You may not find one who can file the return before the deadline. However, extensions may be available.
“Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.”