Why This May Be the Year You'll Need Tax Help
Here's how to find a pro who'll fight for you.
By Dan Caplinger
It's hard enough doing your tax return in normal years when tax laws don't typically change much. But with the massive changes that the New Year's Day fiscal cliff compromise created in tax laws, now might finally be the time to get a professional tax preparer on your side.
Choosing the right person to help you with your returns can be more challenging than you think, but the right preparer could greatly increase your refund by finding deductions, credits, and other benefits you might miss.
Below, you'll find some tips on picking a pro. But first, let's look at all the reasons why having an expert on your side makes sense this year more than ever.
Last-minute changes that may trip up average taxpayers
Until politicians in Washington managed to come to a last-minute agreement, tens of millions of taxpayers were facing potentially huge tax increases. In particular, with favorable provisions of the alternative minimum tax having expired at the end of 2011, initial estimates put the number of new AMT payers in the absence of a fiscal-cliff deal 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.
The eventual compromise 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. 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, yet have them treated as applying to the 2012 tax year.
Looking forward, 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 provisions apply to lower income levels. Those include the new Medicare surtax of 3.8 percent on investment income for those above the much lower thresholds of $200,000 for singles and $250,000 for joint filers. Phase-outs of itemized deductions and personal exemptions are also back, meaning that millions of taxpayers will have valuable tax breaks taken away after enjoying several years of getting a break from phase-out rules.
Getting an expert 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 pro for you.
Who to hire and when not to bother
Most of the advice you'll find on getting a pro in your corner focuses on qualifications. As with any professional, it's important to check on background, experience, and quality of service, getting recommendations from friends and weighing your particular needs against each candidate's strengths and weaknesses.
But it's equally important to find a professional with whom you're comfortable on a personal level. Just like a doctor or lawyer, your tax pro will learn sensitive personal information about you, and you need to have the utmost confidence that you'll be able and willing to tell your tax preparer everything necessary 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 return, then you don't have to waste money to hire a high-powered tax attorney or accountant for help. But if you're dealing with special tax rules this year, going to the mall to work with a newly hired preparer at a national chain can cause unnecessary anxiety.
Most importantly, don't wait to get a pro on your side. By the time April rolls around, the best preparers will already be swamped, and you may well find yourself out of luck trying to find one to work for 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 get someone to fight for a bigger refund right now.