I don’t have to tell you that money is a big part of our lives. But in case you doubted it, a study by the American Psychological Association says that money issues outweigh other sources of tension, including work, family and personal health concerns.
One of the most stressful times for many of us is the annual personal income tax season, which occurs in March and April in the US and Canada.
Now is the time to decide whether you should hire someone to fill out your forms or do them yourself. The degree of complexity — or simplicity — of your own tax situation can guide you in this choice.
However, the taxpayer is always primarily responsible for their income tax returns, regardless of whether they assign the job to others. It’s up to the taxpayer to gather the year’s tax documents together —and those of previous years as well, if needed.
Doing it yourself
Some people actually like doing their own tax returns. Their situation may be very simple. They’ve only got a single income, a single employer and no recent divorce or real estate transactions.
In this case, outsourcing the task to a third party may seem unnecessary. Others are keenly interested in new changes to the tax system and keep up-to-date. These would be the self-employed.
It is possible for them to obtain the proper forms from the IRS and Canada Revenue Agency or by using tax software.
Thinking about doing your own taxes? Why not, if your situation isn’t complicated. There are excellent software programs that you can use.
Among the most popular tax software programs are: TurboTax, UFile, H&R Block and StudioTax. Although some software offers planning elements, caution should be exercised since taxpayers may forget to check boxes appropriate to their personal situation.
Hiring a professional
Using a professional often means the taxpayer can take advantage of all the deductions and credits to which they are entitled. Besides completing the year’s tax return, an accountant might also offer financial planning. Other tax or financial advice may be provided by a specialist. However, there is no accreditation by government revenue agencies in Canada of tax preparers.
Not all accountants are equal. Those designated as accountants are professionals with formal training, including in taxation, and are subject to a code of ethics.
People commonly hire an accountant or tax expert. Some use a family member or friend, but should ask the same questions of them as they would an accountant. There will also be costs. Even a family member or friend should receive some compensation, if only a small token of your thanks, like a bottle of wine.
Accountants work in firms. These firms come in different sizes and may be national or local. In addition to these firms, there are also chains that offer tax preparation services.
But not all accountants are equal. Those designated as accountants are professionals with a background in accounting, including a bachelor’s degree and/or a graduate diploma and expertise with taxes.
Some specialize in taxation and have advanced training. And accountants are subject to a code of ethics. In the US and Canada, Chartered Professional Accountants (CPAs) are those whose designations have been formally recognized.
Depending on the complexity of the client’s taxes and the number of hours it takes professional to complete your return, the rates charged could range greatly, from $30 to $1,000 and more. You have to consider the quality of the work, the money saved by getting the advice of a professional and the time spent on it, not just the costs.
Community groups and educational institutions also offer to prepare tax returns free of charge for people who have modest incomes or who belong to certain groups, like students or immigrants. This can be done at tax clinics in all regions of the country.
Ten questions to ask your accountant
There are a number of questions to be considered when deciding whether to outsource the preparation of annual tax returns.
Among these are a change in personal circumstances, such as divorce, marriage, the birth of a child or a death in the family. It could also involve a more complex situation, such as starting a business or acquiring an income property. That may require more specialized expertise since there are various options and specific rules that apply. Changes to existing tax rules may also be a good time to contemplate hiring a professional.
Here are some questions you should ask yourself – and your potential accountant during a first interview – before you decide:
- How many years of experience do they have?
- Do they have any training in taxation?
- Do they have expertise in a specific area of taxation?
- What are their rates and how do they charge — by the hour or a fixed fee?
- What is their availability?
- Are they available at any time of the year or only during tax season?
- Do they offer continuous updates through newsletters or emails?
- Do they offer the possibility of filing the tax returns electronically?
- Do they belong to a tax association
Asking around in your network of contacts can also help you to find a respected professional.
You need to be confident and establish a firm, trusting relationship before entrusting someone with an aspect of your finances, so it’s wise to spend some time on it. Be organized and start as soon as possible. Don’t wait for the tax deadline.