What's a Tax Consultant, and Do You Need One?

If thinking about taxes makes your head hurt, you might want to hire a tax pro. Photo: StockMonkeys.com.

Many people don't use the services of a tax consultant because of the expense, but a tax pro can save you much more than he or she costs.

A tax consultant is sometimes known as a tax advisor, and many certified public accountants and enrolled agents fit that bill, too. (An enrolled agent is someone who has worked for the IRS or has passed a comprehensive IRS exam and is able to represent taxpayer clients in dealings with the IRS. It's the highest credential the IRS awards.) Don't confuse these tax consultants with bare-bones tax preparers you might run across, who are not necessarily well informed about many aspects of tax law and are best suited to fill out paperwork for taxpayers with uncomplicated financial lives (such as when you don't itemize your deductions).

Here's why it's good to employ someone who is very familiar with the tax code: The number of pages in the instructions for the 1040 form has soared from two in 1940 to 207 in 2013. The U.S. tax code in its entirety recently amounted to 3.7 million words. When it comes to preparing our tax returns, it's well worth considering hiring a tax consultant to help us. Tax-prep software is also handy and can lead to fewer errors than when you prepare a return by hand, but a smart tax pro can be more helpful than software.

If your tax-prep process looks like this, you might benefit from the help of a tax pro. Photo: Bonbon, Flickr.

Who needs a tax consultant?
Many, if not most, of us would do well to employ the services of a tax pro -- but this is especially true for those in certain circumstances. Obviously, if you have a complicated tax life, with factors such as retirement savings accounts, real estate transactions, trust funds, self-employment income, a home office, income from rental properties, stock options, and so on, tax pros can be very helpful. They can also be very helpful if you work and live in different states or countries, when you have an active investing life, or when you buy, sell, or run your own business.

It's smart to consult a tax advisor when you experience a major life event, too. Such events include when you get married or divorced, have or adopt a child, are financially caring for dependents (which can include your parents), receive an inheritance, are widowed, lose a job, start a new job, and buy or sell a home.

Good tax pros can be useful not only during tax season, when they can prepare your return, but also throughout the year. They know the latest laws and rules and can answer questions and offer advice and money-saving tax strategies, such as effectively timing the sale of various assets, taking advantage of all available deductions and credits, and much more.

Major life events, like getting married, represent good times to seek professional tax advice. Photo: Bill McChesney, Flickr.

How to choose a tax consultant
To find a good tax consultant, you can ask friends or relations for recommendations or find someone on your own -- perhaps at the website of the National Association of Enrolled Agents. Be sure that the tax pro you're considering is experienced in the kind of work you need done -- such as personal income taxes or small-business taxes, for example. Seek someone with more than a few years of experience in the work, and make sure the person has a preparer tax identification number.

Do some due diligence research on any contenders, too, making sure they don't have blemishes on their record. You can do so through the Better Business Bureau and, for accountants, your state's board of accountancy. With enrolled agents, you can look for any disciplinary actions or licensing issues via the IRS's Office of Enrollment.

Ask about professional affiliations, certifications, educational background, and licenses -- and feel free to ask for references, too. If the consultant will be preparing your tax return, ask what will happen if you're audited. Above all, be sure that you'll comfortable speaking and working with the person you're considering.

Don't assume that hiring a tax consultant is only for the rich, or that you just don't need one. Hiring one could cost you a few hundred dollars, but it might also save you a few thousand dollars -- or much more.