Most taxpayers don’t need an accountant or a CPA. But there are a few things that happens in your “tax profile” that will completely change that…
Filing software is usually enough for a single W-2 and the standard deduction. The case for a licensed preparer gets stronger when a return starts requiring judgment, following the tax law, not just a simple enter the Gross Wages from Box 1 into a software.
The majority of American filers take the standard deduction and report wage income withheld by an employer. For that return, consumer software will get the job done. And it will be 90% cheaper.
But it’s not that simple. Here’s a general decision map you can reference:
When software is enough
One job. One W-2. The standard deduction. No rental property, no business, no equity compensation, no wages from a second state. Nothing material changed since last year (e.g. divorce, marriage, etc)
In that case a product that costs less than $50 will produce the same return a CPA would sign. The stress of tax season is not, by itself, a reason to hire someone. Save your money and don’t waste it.
A year that looks identical to the last one is only a reason to keep doing it yourself.
When the math changes
Self-employment income brings quarterly estimates and the 15.3% self-employment tax. A simple side hustle with almost no expenses is still often a software problem. You likely can do it yourself.
However, if you have a business with a vehicle, a home office, equipment, and a bank account mixed with household spending is one of the first signs you should get a CPA.
Starting, buying, or selling a business is also another category, regardless if the entity is taxed as a sole proprietorship, a partnership, or an S-corporation. It gets complicated fast. Tracking basis, different tax deadlines, bookeeping. It’s not something you will likely be able to handle yourself. Or if you can, it may not be worth your time.
Why spend 100 hours figuring something out, when you could pay someone to do it, and earn more money during that time saved?
A property sale can trigger capital gains treatment, depreciation recapture on a former rental, or the exclusion for a primary residence. An inheritance can reset the basis of a house or impose distribution rules on a retirement account. Those mistakes are hard to unwind, and are very costly.
Marriage and divorce are often lumped in with those events. The filing status checkmark itself is not the hard part. It’s all the new things that may trip most people up.
Another reason to get a CPA is if you move across state lines, or if you have wages earned in 1 state that is not the one on the driver’s license.
An IRS notice or an audit is also not something you should handle yourself. Representation is the point of the CPA credential.
What the fee is actually buying
Industry fee research puts a simple Form 1040 with one state return in $300-500 . A sole proprietor Schedule C is often several hundred more. An S-corporation return with payroll and a personal 1040 commonly runs into $x,xxx pretty easily.
The relevant comparison here is not the fee against $0 (since you were doing it yourself).
It is the fee against a missed entity election, an estimated tax penalty, or an amended return after a notice. And it will take away a lot of stress knowing that you have someone reliable in your corner.
Software also reports what already happened. A preparer who sees the file before December can still change what happens. Tax planning CPAs can suggest strategic retirement contributions, answer a cost segregation question, the timing of a sale, or tax minimization strategies. That is the work that will easily justify the invoice.
How to choose one
As a CPA myself, I know that choosing the right CPA is stressful. You have to contact a million of firms, often waiting weeks for a reply, and not truly knowing whether they may even handle your situation.
This is exactly why using FindCPA can be such an easy choice.
FindCPA has 2 things:
- A free concierge form that you can fill out and they’ll match you with a licensed CPA ready to provide services you need (best choice)
- Browse their directory of 19,000+ CPAs serving your area (still a good choice, but you will still need to contact them individually, and that will take time)
FindCPA is literally changing the way people search for CPAs. Don’t go the hard route.