Paying taxes isn’t the most exciting of topics, so we’ll keep this short and sweet. Thumbtack just wants to save you money. That’s exciting, right?
Here to help are Darren Dowdell of Acade Tax Services, LLC in Buffalo, New York and Richard Ponce of RCP Tax Services, Inc. in Los Angeles—two top-rated Thumbtack pros. They share the biggest mistakes they see people make and how to navigate hiring a tax pro—which by the way isn’t just for the überwealthy.
Are tax services only for rich people?
If you’re not a millionaire, a tax pro saves you money by finding every possible deduction and credit you deserve (such as the Child Tax Credit, Earned Income Credit, etc.). Credits are geared toward helping lower and middle income tax filers, says Darren. Maximize what’s out there to get the largest return possible.
Another perk of a pro is the errors they catch. Hiring an expert may cost money up front, says Richard, but it’s their job to find missed deductions or mistakes you’ve made. Alternately, hiring a pro after you’ve run into trouble with the IRS can also be a lifesaver, as they may know how to reduce or erase liabilities.
Darren, what are the 5 most common errors you see when people do their own taxes?
- Claiming dependents incorrectly. This often happens with divorced parents sharing custody and can lead to complications.
- Understanding what filing status to claim. For example, most unmarried people claim “Single,” when “Head of Household” is much more tax beneficial.
- Not taking advantage of tax credits. There are over 80 federal credits currently available, do you know about any of them?
- Having a friend or relative file the return. Your uncle may be great at filling his tax return, but your filing situation is different. If you have questions, ask an expert.
- Worrying that claiming too many contributions on their tax return will cause them to be audited.
Richard, what are the 5 most frequent tax mistakes you see at your company?
- I see homeowners who rent out duplexes or space in their homes and take incorrect deductions and interest. They get a huge, unwarranted refund. This will mean trouble down the line.
- Business owners who shortchange their refunds by not properly accounting for the costs of their inventory. One client had reported his income from selling his goods, but miscalculated the cost he paid to purchase those goods. When I found the error, he got a huge refund.
- People not including all their income, especially from tips.
- Claiming gas expenses for business, but erroneously using current gas prices to calculate the entire year, versus keeping an actual log of their gas purchases that reflect the fluctuating gas costs throughout the year.
- Claiming expenses for a previous period during the current tax period.
What’s important to know before hiring a tax pro?
Darren warns against engaging someone who is not a CPA or Enrolled Agent. Tax prep is not a licensed profession, so unless they’re a CPA or Enrolled Agent, they could be doing you more harm than good.
Both Richard and Darren recommend asking if the tax pro is experienced with your type of filing. Are you a single parent, own a rental property, trade stocks, or have kids in college? Then you want your numbers person to be an expert in your area of need.
Ask if the pro will list him or herself as a third party designee, says Darren, while Richard recommends asking that in the (completely unlikely) case you’re audited they require an additional fee to represent you. And Richard also reminds you to be safe—ask how the pro protects personal data against identity theft.
What kind of services are available at tax prep companies?
In Buffalo, Darren’s company offers free e-filing, tracking of refunds, and year-round availability to provide tax planning and advice. They charge per form, typically $75 for a 1040, $59 for a 1040A and $49 for a 1040EZ. Additional required forms such as itemizing deductions are extra.
In Los Angeles, Richard’s company offers tax preparations services for individuals, business, trusts, gifts and estates. RCP also offers bookkeeping services. Rates vary, depending on whether the person is retired, how many years of returns have to be prepared, and whether they are preparing business or individual returns. Each agency is different, so be sure to be clear on fees before committing.
What are the benefits to someone hiring a tax pro?
As life grows, so do tax complications. Darren encourages new clients to bring in prior years’ returns to look for unclaimed deductions or credits, so they can then file amended returns. He says tax software is great, but unless you know what to look for and what questions to ask, you’ll miss out on some money.
Investing in your money is important, and as Richard says, you can never tell how expensive an amateur can be until you need a pro to fix their mistakes. A qualified professional will have extensive knowledge of what write-offs you can safely put on your return, and will—in the long and short run—save you money.
Don’t worry, you still have time before tax day! Now organize those files and find some help.