In 2020, about 30 million Americans lost out on tax breaks they would have qualified for and paid more taxes than they should have. Managing deductions and credits can be overwhelming, but you might be losing a lot of money if you just take the standard deduction. But how are you supposed to figure out which deductions you qualify for alongside navigating the already-confusing world of taxes?
Hiring a tax consultant can be a great way to reduce your tax bill and make sure you stay on the right side of the IRS. Read on to discover the situations in which a tax consultation might be a good idea.
1. You Have a Side Hustle
As of last year, one in three Americans has a side hustle of some sort, and those numbers are on the rise. Gig work can be a fantastic way to make some extra money on the side or even start growing a business. Unfortunately, these extra gigs can make your income taxes a little trickier when April rolls around.
In almost all cases, side hustles do not collect taxes up front the way a traditional salaried position does. In fact, if you make enough money on your side hustle, you may need to pay portions of your tax bill throughout the year. Knowing when to hire a tax consultant can help you navigate this income and stay on the right side of the IRS.
2. You Have Investment Accounts
Another non-standard form of income that can complicate your taxes is investment accounts. Investments can be a great way to grow your money passively, so your savings are working as hard for you as possible. And like side hustles, investment accounts come with their own tax rules.
In general, you should get a tax form at the end of the year summarizing the activity on your investment accounts. But depending on what happened with your accounts during the year, how much you owe can turn into a complicated question. A good tax professional knows all the ins and outs of these accounts and can help you to manage them properly.
3. You Get a Government Benefit
As of 2019, about one in five Americans gets some sort of government benefit. Benefits can include programs like Medicare and Medicaid, SNAP benefits, social security payments, and much more. These benefits can make life easier for the elderly and people living in poverty, but they can make your tax situation more complicated.
Just like the other two things we’ve talked about, government benefits can count as a form of supplemental income. This means that you may need to pay taxes on them, or you may be eligible for tax breaks because of them. One of the benefits of a tax consultation is that it can help you make sure your bill is as low as possible and that you get all the deductions you’re entitled to.
4. You Have Kids
You might be surprised to learn that whether or not you have kids can have a big impact on your tax situation. The government offers a variety of deductions and credits to parents to help offset the cost of raising a child. Some of these benefits were increased in the last few years thanks to the COVID-19 pandemic.
If you have children, it’s a good idea to talk to a tax consultant to make sure you’re getting all the deductions you’re entitled to as a parent. Even if you don’t have a child yet, if you’re planning to have one soon, you may still want to get professional advice. A tax consultant can let you know what documentation you need to save throughout the birth process to get the biggest possible deduction.
5. You Run a Business
Of course, if you’re an entrepreneur, your tax situation may be beyond complex. You have to deal with business taxes, as well as how your income from your business factors into your personal taxes. If you add employees into the equation, you may need a full-time accountant in addition to a tax consultant.
The good news is that, as a business owner, you’re entitled to a lot of deductions and credits. In fact, if you run your business out of your home, you could deduct some of your housing expenses as a business asset. A tax consultant will help you figure out how to manage all of this, so you get the best deal for yourself and your business.
6. You’re Being Audited
One of the most critical times to get a tax consultant is if you’re being audited. Audits can be terrifying ordeals, especially since you’ll be expected to produce every piece of documentation on your finances for years back. Audits are relatively uncommon, but you don’t want to try to navigate one on your own.
Your tax consultant can guide you through the audit process, helping you gather the appropriate paperwork and documentation. They can ensure that all your filings are accurate so, if the IRS does come calling, you can be certain you have nothing to worry about. This peace of mind is more than worth the fee you pay to the consultant for their expertise.
7. You’re Getting Married or Divorced
It may not come as a surprise that major life changes are always a good reason to hire a tax consultant. Getting married can be very exciting, but it also means merging your financial life with someone else. Likewise, getting divorced means your finances are about to become separate again.
Whether you’re filing jointly for the first time or single for the first time in a while, it can be helpful to have an expert guiding you through the process. If you’re getting married, your tax consultant can also help you and your spouse decide whether to file jointly or separately. If you’re divorcing, they can help you learn to navigate alimony, child support, and any settlement you got from the divorce.
8. You’re Retiring Soon
The other major milestone in your financial life is leaving a job and beginning your retirement. Once you retire, you won’t have a traditional salary income anymore. But you may have a pension, social security benefits, income from retirement accounts, income from investments, and a variety of other complicated sources of income.
A tax consultant can help you navigate this confusing new world of retirement income, as well as the addition of Medicare and other such programs. They can also help you to make financial decisions that will help to solidify your end-of-life plans. You’ll be able to enjoy your retirement secure in the knowledge that your finances are healthy and thriving.
9. You’re Buying or Selling a House
The biggest purchases you’ll ever make in your life are likely going to be homes, so it makes sense that house purchases and sales have a big impact on your taxes. If you’re buying a home for the first time, you’ll be entitled to a generous tax credit designed to give you a strong start in your new home. And depending on the circumstances in which you sold your home, you might be looking at a big tax bill.
To take advantage of all the appropriate tax credits, you’re going to want some professional advice. A tax consultant can let you know which forms you need to file and what deductions you’ll be entitled to. It’s also a good idea to talk to a tax consultant before buying or selling a house so they can advise you on how to handle that process.
10. You’re Getting an Inheritance
Although inheritances are a bittersweet windfall, they do have a major impact on your finances. While they aren’t a traditional form of income, they are still taxable in some cases. There are lots of laws dealing with how estate finances get handled, and many of them are in a state of constant flux.
If you’ve recently gotten an inheritance, you’re going to want to talk to a tax consultant as soon as possible. They can advise you on how to handle that money to keep your tax burden as low as possible. They can also let you know what documentation you need to collect as you go through the estate settling process.
11. You Owe the IRS Money
As with audits, owing the IRS money is one of those situations that warrants an immediate call to a tax professional. Back taxes are no joke, and your bill could start to go up in a hurry as the IRS tacks on penalties and fees. You could wind up paying thousands of dollars in fees alone if you don’t handle the situation appropriately.
A tax consultant can help you figure out a way to pay the money you owe the IRS without destroying your budget. They’ll let you know what you absolutely have to pay right now and may even be able to help you file extensions or other such temporary solutions. Even in small cases of back taxes, getting professional help can keep the situation from getting quickly out of hand.
12. You Earn a Lot of Money
Although taxes may look the same on the surface, the truth is that the more money you make, the more complex your taxes get. For one thing, as your income goes up, you’re more likely to have sources of passive income and other such financial situations. But a larger income can also give you opportunities to lower your overall tax burden.
There are certain loopholes, policies, and credits you can use to your advantage when it comes time for tax season. Your tax consultant will know all the ways you can invest your money to reduce your tax burden without compromising your wealth. If you’re making more than $200,000 a year, it’s a good idea to get a tax consultant on the payroll.
13. You Want to Lower Your Tax Bill
Of course, it’s not only the upper class who’s looking for ways to make April a little more affordable. No matter what level of income you’re at, chances are you want to lower your tax bill. And while tax consulting services do cost money, they can wind up paying for themselves in the long run.
There are dozens of credits, deductions, and rules that are almost impossible for a layperson to decipher on their own. But a tax consultant knows how to use all these rules to your advantage. They can make sure you’re getting every credit you’re entitled to and work to find you every possible dollar you can get in your refund.
14. You’re Tired of Stressing Over Taxes
When you think of the worst part of tax season, chances are you don’t even think about the money you have to pay in taxes. Instead, most of us start thinking about how stressful that time of year is. You have to spend hours pouring over forms and programs and calculations, hoping you get the right number without paying more than you have to.
A tax consultant can take all the hassle out of your tax filing process and make your April much more pleasant. All you have to do is to gather up your financial documentation as it comes in and take it to your consultant. They’ll handle it from there and make sure you get the best possible deal in the process.
Set Up Your Tax Consultation
Taxes can be complicated, especially if you’re going through a major life change or getting audited. A tax consultant can guide you through taxes for an inheritance, alimony, a home sale, and more. In fact, it’s a good idea to hire a tax consultant any time you go through a major life change or just if you want to save some money on your tax bill.
If you’d like to set up a tax consultation, check out the rest of our site at Silver Tax Group. We provide fast action and proven results to solve your tax issues. Get a free case evaluation today and let the real tax attorneys resolve your IRS headaches and tax issues.