As a result of the long delays in tax processing caused by the pandemic, the Internal Revenue Service (IRS) warned taxpayers to be more careful when preparing their taxes this year. Tashiana and Luis Diaz, from the Bronx, New York, have taken this warning to heart and have hired a tax accountant.
Last year, Tashiana, aged 30, a program manager at a non-profit organization, and Luis, aged 39, a driver for the Metropolitan Transportation Authority, tried to do their taxes themselves, using a tax preparation program. But because they weren’t sure they were claiming all the deductions they were entitled to, they also visited a tax preparer, an IRS-certified agent who opened a low-cost business in his neighborhood. In the end, they weren’t very confident.
This year they plan to outsource the job to a certified public accountant with more advanced credentials and tax planning knowledge. Like many Americans, the Diaz family in 2021 received economic impact plan payments or stimulus money from the federal government. And like many parents (the couple has a three-year-old son), they also received advance tax credits in the form of monthly payments for their child.
For them and millions of others, these payments have created even more uncertainty and confusion in this year’s tax filing process.
“We don’t know how all the money we received last year is going to affect us or how we have to put it on our taxes,” says Tashiana. “We are not going to hire any person who has just been trained for the fiscal season. This year we have to make sure we hire someone who knows what they are doing”.
A tax year headache
People who make a living preparing tax returns know that this process can be overwhelming for many taxpayers.
In addition to the staffing shortage at the IRS, caused by COVID-02, there were several changes pandemic-related tax bills that have caused significant backlogs at the agency, making delays more likely. These are two of the main changes:
Stimulus payments. Unlike the two stimulus payments in 2020, last year’s payment was extended to include dependents beyond children under 17 years. Taxpayers who qualified and claimed college students, adults with disabilities, parents and grandparents as dependents on previous tax returns could get more money. This means that some taxpayers, who had not previously declared their qualified dependents but who can now, may not have received the third payment or the maximum amount to which they are entitled.
To claim refund credit for those funds, they will need to include the amount of stimulus money they received last year, if any, and verify if they had eligible dependents in 2021.
If you’re not sure how much stimulus money you received last year, you can check your IRS account online. That information will also be in a document called a “Letter 6475,” which the IRS says it will mail out during March 2022.
Tax credits for children. Calculating the tax credit that corresponds to your children is even more confusing . The amount you received last year is supposed to be only half of what you are entitled to receive. But to determine exactly how much you have left, you’ll need to fill out another form, Schedule 8812 from the IRS, and attach it to your form 1040.
As with the details of the stimulus payment, you can check your IRS account online to see how much you received last year in tax credits for your children. Or look in the mail from the IRS if you have received another form called “Letter 6419”. The IRS says it was sent from December 2021 to January 2022.
Consult the professionals
Diana Sabari, owner of an ATAX tax preparation franchise, in the Washington Heights neighborhood of Manhattan , New York, says that many of its customers are very concerned this year. His clients, many of whom are Spanish-speaking immigrants from the Dominican Republic, families and seniors, feel particularly unsure about where to find the information they need, and how the stimulus payments and tax credits they received for children will affect your taxes.
Sabari says her clients seek the peace of mind that a professional preparer provides, especially if they’ve made a mistake on their returns or owe money in the past.
“They are very scared”, says Sabari. “The back and forth with the IRS turns into chaos. And they usually end up paying an unnecessary amount of money.”
Ted Rossman, Principal Tax Analyst at Bankrate.com, understands why more people may want to hire a CPA this year. He says that the pandemic has affected the finances of many families, which makes those who are owed a refund urgent to get that money quickly.
But he says that the majority of People, including those who received stimulus payments or child tax credits, should be able to prepare their taxes on their own with Free File, available on the IRS website, or with a tax preparation program like H&R Block, TurboTax or TaxSlayer. Most agents registered as seasonal tax preparation providers, whose prices are generally cheaper than a certified public accountant (or CPA), should also be able to handle it.
Although not it’s wrong to want the extra help of an accountant, says Rossman, “you’re going to have to pay a little more for that.”
The Diaz family says they have been quoted fees of up to $500 for filing your tax return. In 2020, the average cost for an accountant to file a federal and state return 1040 not itemized was $39, according to a National Society survey of tax preparers and accountants of Accountants. The average federal and state itemized return costs $323.
Rossman says that people with more complicated tax situations, such as business owners, people who share custody of a child, those who have received a large inheritance, or those who have a lot of earnings from capital for cryptocurrency transactions and other investments, they may prefer an accountant because he can give them professional help in tax matters.
In fact, he says that hiring an accountant from time to time can be a financially healthy habit for almost everyone. “It’s a good x-ray of your financial life and a good opportunity to assess where you’ve been, where you’re going, what kind of year you’ve had financially and what adjustments you might make in the future.”
For example, Tashiana says that her husband has adjusted his withholdings, hoping that this will help reduce the amount of taxes they have to pay.
But the The Diaz family is feeling the pressure of the tax filing deadline, April 18. They used to make the declaration before, they hardly received the W2 from their employers, but this time they are still looking for an accountant they like.
“We have to interview people to see who is going to be the most adequate to manage our finances this year, because we have a lot at stake,” says Tashiana. (Read more about how to find a good tax preparer).
In Conclusion
There are a few points to keep in mind when deciding whether or not to hire an accountant.
Consider doing your own taxes if:
Your taxes are simple. That means most of your income does not have itemized deductions. “More than half of Americans who file taxes each year don’t itemize their deductions,” but instead claim the standard deduction, says Janet Lee Krochman, a CPA in Costa Mesa, California. If this is your case, “surely you can make the declaration yourself”.
You are retired. Krochman It says that if you receive social security and a pension, it is easy to do it on your own.
You are a student. Most likely you only have one or a few W2’s, which require you to fill out only the tax form 1040, says Krochman.
Consider hiring an accountant if:
Are you self-employed or a small business owner. If so, you will need to file a Schedule C tax form, which requires you to review many documents and receipts, says Krochman. “The fees you pay to a public accountant serve to alleviate this complication,” he says.
You have inherited money in the form of investments. If you inherited cash, generally with federal taxes there’s no need to hire an accountant because the money isn’t taxable, says Krochman. The situation is more complicated “if you inherited stocks, bonds or mutual funds; in which case it is worth going to a professional”.
You sold investments, traded stocks, used or sold cryptocurrencies. Krochman says there is a lot of information required when reporting this type of financial activity. “This is an area where it’s easy to get tripped up,” and where a professional can help you, he says.
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Consumer Reports has no financial relationship with the advertisers on this site. Consumer Reports is an independent, nonprofit organization that works with consumers to create a fair, safe, and healthy world. CR does not endorse products or services and does not accept advertising. Copyright © 2022, Consumer Reports, Inc.