At what point do you hire a CPA to do your taxes?

[Platypuses]

Several years ago when our income substantially increased we used a CPA to do our taxes. The CPA did a good job, but I decided not to use her again since we didn't have any special circumstances or receive any advice on how to lessen our tax burden. Basically I could do everything she did with Turbotax. This year our combined income went up a significant amount again (>400k/yr) causing our tax burden to be quite large. My DW mentioned that I should get a CPA to help with our taxes this year, but I don't see the value in it since we are both W2 employees with typical deductions.

Am I missing something here? Should I have a professional prepare my taxes for me even though they are relatively simple?

Thanks.

[terran]

As I see it, the things that make an accountant more valuable to someone with a high income than a low income:

1) Deductions are "worth" more since they you pay a higher marginal rate (37% of $1 in the highest bracket is more than 10% of $1 in the lowest bracket), so if they catch something you miss you "make" more compared to their fees.
2) If the higher income comes from more complex employment like a business, or the potential to become reclassified as 1099 and be treated as a business (some doctors do this) so you can avoid some self employment taxes (s-corp).
3) Arguably your time is worth more that that of a lower income person (according to the market at least), so if you could be earning more in your area of expertise while your accountant is doing your taxes, or your free time is just worth more to you than their fee then it makes sense to use them.

But, there's nothing inherently different about high income that favors using an accountant compared to low income. If you're confident that you will find all the deductions you're entitled to, you can't work at something that will earn/save you more money (after taxes) than the accountant's fee, and you would rather save the money than have the extra time, then I'd agree with you that you don't really need an accountant. If any of those aren't true, then you might want to reconsider. 

[trollwithamustache]

complexity should drive you to a CPA. I think a lot of people with high W-2 income like to brag about having a more expensive CPA than their golfing buddy.

[Spitfire]

Agree that complexity should be the driving factor. A self employed person making $50k might need a CPA more than w-2 employee making $250k.

[CareCPA]

As a CPA, I agree. You don't need a CPA. At least not until there is something complicated - and simply having high incomes does not meet that threshold.
Business ownership is the threshold I normally recommend. Although for mustachians, I can't even guarantee I'll save them any money at that point (since most are already well-versed in tax optimization). It's really more of ensuring accuracy in compliance.

I do some simple individual returns for people I know. Quite honestly, it's not worth my time or their money, but they have no interest in doing it themselves and at least this way I know it's right. H&R block or similar would cost them three times as much for a simple return, and, in my experience, is not always right.

[SeattleCPA]

As a CPA with a firm that specializes in tax services, let me say that I agree with comments from Spitfire and Care CPA.
 
I would also offer these three additional suggestions:
1. Where you get into the trouble, often, is when income you need to report doesn't appear on a form like a W-2 or 1099.
2. High income doesn't by itself drive you into the offices of a CPA, high complexity does.
3. The cost of a good CPA and then the low income taxes a middle income person probably means that TurboTax or something like it is an optimal solution for most middle income folks. (I would doubt someone earning $50K, even if they have lots of complexity, can economically justify paying for a CPA.)

[Much Fishing to Do]

I do think there is an in between to always consider, when your life changes (becomes more complex), or maybe when the tax code significantly changes, hire a CPA to do your taxes for two years. Look and see if the second year is the same as if you had done it yourself using the first year as a cheat sheet.  If so, I think you can take back over. 

I'm wrapping up a 7 year stint owning a S Corp and have gladly paid the CPA to handle every year.  But I'll probably just have them do one year when I am post business and then take over as I suspect it'll be simple enough for me to handle

[Platypuses]

Thanks for all the responses. I feel much more confident about my decision to continue doing them myself.

[Capt j-rod]

I use a CPA due to my rentals. I don't know if others subscribe to my theory, but a return stamped by a CPA is less likely to generate an audit. My CPA protects me from myself lol. She also has helped with vehicles, deductions, and planning. She has never failed to save her fees that she charges. She does it for a living. I stick to my skill sets, and she sticks to hers.

[cpa cat]

If you feel that you're spending too much time doing it, or that you're unsure you're doing it right, it might be worthwhile.

I see errors on relatively simple self-prepared returns every year. Especially surrounding dependent care benefits, HSA distributions, and 529 distributions ending up being taxable.

At the least, you should be printing out your self-prepared return before filing it and reviewing it to make sure everything is actually coming out the way you think it should. And if you're not sure how it should turn out, then yes, hire an accountant.

[SeattleCPA]

I do think there is an in between to always consider, when your life changes (becomes more complex), or maybe when the tax code significantly changes, hire a CPA to do your taxes for two years. Look and see if the second year is the same as if you had done it yourself using the first year as a cheat sheet.  If so, I think you can take back over. 

I'm wrapping up a 7 year stint owning a S Corp and have gladly paid the CPA to handle every year.  But I'll probably just have them do one year when I am post business and then take over as I suspect it'll be simple enough for me to handle

Having an S corporation is an example where, IMHO, you benefit from having a CPA handle the taxes for you. It's pretty easy for CPA to charge you $1K and save you $10K.

The other thing I'd also say--just as a warning--is CPAs incur a setup cost the first year they do your return. Especially if the tax return includes lots of stuff carrying over from year to year. Therefore, alerting CPA to fact that you're only a one or two year client probably allows him or her to assess whether they can economically deliver what you want and the price you're comfortable paying.

This related news flash: In most of the small CPA firms I know enough about to make an assessment, a pretty significant chunk of the client rooster isn't actually profitable. Smart CPA firms, therefore, try to focus and then filter their client lists so they're making enough to pay their costs (most of which is payroll) and earn a decent living.

[SeattleCPA]

I use a CPA due to my rentals. I don't know if others subscribe to my theory, but a return stamped by a CPA is less likely to generate an audit. My CPA protects me from myself lol. She also has helped with vehicles, deductions, and planning. She has never failed to save her fees that she charges. She does it for a living. I stick to my skill sets, and she sticks to hers.

I doubt that merely being signed by a CPA or EA dampens your audit risk... although that might be case. (The computer program that scores returns for audit selection is a black box.)

However, I think the data shows that error rates drop as you move from self-prepared to unenrolled paid preparer (like H&R Block) to CPAs. And it's absolutely my experience that a return laden with errors is more likely to get selected for an audit.

Regarding the tax savings versus CPA fees analysis, I think that's the way you think about a good CPA or EA. I tell my clients who ask that I want them to say, "Well, Steve is expensive... last year, gosh, I think I paid $3K... but I can point to $13K of tax savings."

[SeattleCPA]

If you feel that you're spending too much time doing it, or that you're unsure you're doing it right, it might be worthwhile.

I see errors on relatively simple self-prepared returns every year. Especially surrounding dependent care benefits, HSA distributions, and 529 distributions ending up being taxable.

At the least, you should be printing out your self-prepared return before filing it and reviewing it to make sure everything is actually coming out the way you think it should. And if you're not sure how it should turn out, then yes, hire an accountant.

I agree with pretty much everything CPA Cat says above...

E.g., if you're TurboTaxing your return yourself, it's almost a given you're making errors and missing opportunities.

But I think the one other thing to consider is the cost or those errors and missed opportunities versus the price to have some good tax accountant do your return.

It's easy, I think, for an average person (median income household) to not get good value from a good CPA.

[Sibley]

I prepare my own taxes. I'm a CPA, but not in tax anymore.

I do my parent's taxes as well. They have 3 schedule c's, a rental, home office, and it's all in a duplex house. Splitting property taxes and mortgage interest is a PITA. Lots of moving pieces, etc. I am comfortable doing their taxes indefinitely, except for the year they sell the house. I'm NOT dealing with a sale of rental that is also a personal residence that also has a home office. Just, no.

[Fomerly known as something]

I'm basically a W-2 Employee.  I use a CPA in part so I can seek advise as things come up throughout the year.  For example, I just sold a rental property.  The CPA will tell me what I need to send to the Feds by April 15 to cover the capital gains from that sale separate from my 2017 taxes.

So basically if you feel you would like tax advise before you do something financial throughout the year use a CPA.  Most will include basic tax advise any time in the year not just at tax time.

But if you won't have any additional not tax time questions don't bother.

[MrUpwardlyMobile]

As a CPA with a firm that specializes in tax services, let me say that I agree with comments from Spitfire and Care CPA.
 
I would also offer these three additional suggestions:
1. Where you get into the trouble, often, is when income you need to report doesn't appear on a form like a W-2 or 1099.
2. High income doesn't by itself drive you into the offices of a CPA, high complexity does.
3. The cost of a good CPA and then the low income taxes a middle income person probably means that TurboTax or something like it is an optimal solution for most middle income folks. (I would doubt someone earning $50K, even if they have lots of complexity, can economically justify paying for a CPA.)

Spot on good advice.  H&R Block’s online tool or a similar tool is fine so long as your tax situation is simple. I have simple taxes but high income. My taxes are really not worth hiring a CPA for. Business owners and people with strange income sources should seriously consider using a CPA.

[mavendrill]

One thing in addition to all those mentioned:
Hiring a CPA is extremely wise for almost anyone operating a trust.  I am the trustee for several disabled family members, and even though I can easily do the trust taxes (I think), I never would in a million years.  When you are acting on behalf of others using complex instruments and required to act in their best interest, you owe it to them to use your judgement and the professional skills of others.