Tax Help: 2013 May Be the Year You'll Need to Hire a Professional
It's hard enough doing your tax return in normal years, when tax laws look a lot like they did the year before. But with the massive changes that the just-in-time fiscal cliff compromise legislation created in the tax code, this might finally be the time to get a professional tax preparer on your side.
Choosing the right preparer could greatly increase your refund by finding tax deductions, tax credits, and other benefits you might miss -- but picking one isn't always easy.
Below, we offer some tips on how to pick your pro. But first, let's look at all the reasons why having an expert on your side makes sense this year more than ever.
Changes at the Edge of the Cliff
Until politicians in Washington managed to come to their last-minute agreement, tens of millions of taxpayers were facing potentially huge tax increases.
In particular, the alternative minimum tax promised to wreak serious havoc on millions of families' returns. The AMT was originally intended to prevent the very rich from using loopholes and credits to avoid the tax man altogether. But time and inflation expanded the number of people who fell under the AMT enormously -- or would have, had lawmakers not annually passed a temporary "patch" to the AMT that adjusted it for inflation.
Thanks to the partisan wrangling in Washington, though, the last temporary patch had expired at the end of 2011, and -- had no fiscal-cliff deal been reached -- initial estimates put the number of new AMT payers this April at upwards of 30 million, with an average tax hit of around $4,000 and some taxpayers seeing even larger increases of up to $8,000.
Sponsored LinksThe fiscal cliff compromise actually solved the AMT issue permanently, and extended low tax rates for the vast majority of taxpayers. But in the process, it brought back some confusing provisions to the tax code. For instance, the measure extended a tax break for charitable contributions made from IRAs. But since the new law didn't take effect until after the ordinary deadline for 2012 contributions, the IRS had to issue special rules to allow taxpayers to make charitable distributions in January, but have them treated as applying to the 2012 tax year.
Looking ahead, things will get even more complicated for many taxpayers. Although the highest ordinary income tax rates only take effect above $400,000 of taxable income for single filers and $450,000 for joint filers, several new provisions apply at lower income levels. Those include the new Medicare surtax of 3.8 percent on investment income, which applies to income above $200,000 for singles and $250,000 for joint filers. Also, phase-outs of itemized deductions and personal exemptions are also back, meaning that, after enjoying several years of temporarily favorable rules, millions of taxpayers will see those tax breaks fade away.
Getting an expert tax preparer to help you now will not only make it easier to get your 2012 tax returns filed but also help you get a head start on planning for 2013's taxes. But you have to find the right tax professional for you.
Who to Hire and When Not to Bother
Most of the advice you'll find on getting a professional tax return preparer in your corner focuses on qualifications. As when hiring any professional, it's important to check on background, experience and quality of service, to get recommendations from friends, and to weigh your particular needs against each candidate's strengths and weaknesses.
But it's equally important to find a tax preparer with whom you're comfortable on a personal level. Like a doctor or lawyer, your tax preparer will learn sensitive personal information about you, and you'll need to feel able and willing to tell him everything necessary for him to file a complete and accurate return.
Moreover, make choices based on the level of difficulty of your taxes. If your only income comes from your job and you typically file a 1040-EZ, you don't have to waste money on a high-powered tax attorney or accountant. But if you're dealing with special tax rules this year, going to the mall to work with a novice preparer at a national chain can cause unnecessary anxiety.
Most importantly, don't wait too long. By the time April rolls around, the best tax return preparers will already be swamped, and you may well find yourself out of luck trying to find one to help you.
So if you're among the roughly 60 percent of taxpayers who'll get expert help on their returns this year, procrastination is the enemy. Go out and find someone to fight for your biggest possible refund now.
Motley Fool contributor Dan Caplinger (@DanCaplinger) still does his taxes on his own.