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Do I Need a Personal Accountant?: 10 Sure Signs That You Do

The national educational system leaves a lot to be desired when it comes to useful, everyday knowledge. So people who are struggling with doing their finances (tax included) shouldn’t fret. They aren’t alone in their predicament. However, doing taxes and managing personal finances, in general, isn’t brain surgery. An average person can do it. Still, there comes a time in every adult’s life where they ask themselves, “Do I need a personal accountant?”

What Is a Personal Accountant?

Some people think that hiring a personal accountant is a waste of money. But what they don’t consider is the time, energy, and, ultimately, funds, they’ll save by hiring one.

A personal accountant prepares all necessary documents for filing taxes, manages bookkeeping, and keeps an eye on all financial innings and outings. They are a helping hand for everyone who feels like they are struggling with these tasks.

The Benefits of a Personal Accountant

First things first — accountants know their way around numbers. They are magicians when it comes to budgeting, cost-cutting, and managing finances. They also know every nook and cranny of tax law and will, therefore, be able to maximize tax returns and meet all deadlines. Taking advantage of tax returns and avoiding late fees are priorities for most people when it comes to taxes, and that’s precisely what a personal accountant will do (among other things).

Does the Personal Accountant Need to Be Certified?

There are three different types of personal accountants people can choose from. Those are:

  • Enrolled Agents — People who have intricate and complicated tax and financial issues (collection or audit issues, for example), can enlist a registered agent to represent them before the IRS.
  • CPAs — Certified public accountants who have passed a rigorous four-part test and earned their state certification can handle specific tax issues. They usually specialize in particular aspects of accounting. Therefore, those specialized in tax accounting can lend a helping hand to people struggling with this (and future) tax season.
  • Tax Attorneys — When push comes to shove, tax attorneys can help. If a person has legal issues with their taxes and has to take their case before the U.S. Tax Court, for example, they should seek legal help from a certified tax attorney with a JD (Juris Doctor) degree.

Depending on the issue a person is struggling with, they can pick one of these three options. However, before that, they should make up their mind if they actually need a personal accountant or not. Here are ten signs that point in that direction.

Sure Signs You Need a Personal Accountant

When Taxes Are a Great Mystery

Some people look at financial statements with a spark of fear in their eyes. In fact, any talk about tax returns and other financial conundrums goes right over their heads. And that’s fine. Well, it’s a bit of a pickle, but nothing a personal accountant can’t solve.

Struggling with personal finances is nothing to be ashamed of. After all, as was mentioned at the very beginning, nobody teaches young adults how to handle real-life, grown-up responsibilities, such as taxes. 

Hiring a personal accountant might be beneficial for those who need someone to not only handle their books and transactions, but also keep track of bills, checkbook balances, and credit card statements. Of course, if someone doesn’t have a tax issue per se but only needs someone who will handle their personal finances instead of them (be it to save money or time), they don’t need to aim high. 

Regular bookkeepers, as well as enrolment agents, can help. There’s probably no reason to involve a CPA or a tax lawyer, as that might be a massive financial burden.

Another good reason to get a personal accountant is if someone is unfamiliar with tax laws. Tax laws and regulations, which include:

are not easy to understand. Although they are all connected (as tax regulations are the Treasury’s official interpretation of the tax code, while the revenue rulings are the IRS’s interpretation of the code, written with specific situations and tax issues in mind), they are still rather extensive. On top of that, laws and regulations keep changing. Thus, keeping track is somewhat tricky.

What’s more, there’s a strong possibility that a layperson misinterprets them and acts based on that misinterpretation, thus, ending up with a much bigger problem on their hands than “not understanding.”

Come April 15, many people will find themselves indebted to the government. The reason for that is that they don’t file their taxes correctly. Thus, they end up with a bill instead of a return.

Everyone should pay quarterly taxes each year. January, April, June, and September 15 are those dreaded tax days and, generally, the only days people think of taxes at all. That’s why many of them find themselves with huge debts to the state and the federal government. 

People who find themselves with several thousands of dollars of debt on April 15 are usually those who are self-employed or have multiple sources of income. It also isn’t unusual for people with investment income to find themselves in this predicament.

A personal accountant will be most helpful in a specific situation. People who don’t have many write-offs, earn an average wage while employed in one company, and don’t have to keep an eye on too many tax credits probably won’t find themselves scouring the internet for a CPA. However, those that do can drop the ball fairly quickly.

Some people have a more complicated tax situation than merely being a W-2 employee. Those lucky enough to have a straightforward situation usually have simple deductions like property taxes, charitable contributions, mortgage interests, etc. But as soon as someone strays from that professionally (has a bigger income, significant investments, multiple sources of income, businesses, etc.), they should hire a private accountant.

In other words, when a person finds themselves not understanding their tax obligations or struggling to keep an eye on every detail regarding their personal finances, they should hire a personal accountant.

When Time Is Money 

Whether a person knows how to manage their own finances or not becomes irrelevant once they figure out they don’t have the time to do it properly. Organizing finances, keeping track of all tax deadlines, and filing all tax paperwork takes both time and effort. Some people simply can’t afford that.

Sure, taxes aren’t a piece of cake, but they shouldn’t be the bane of someone’s existence either. If someone needs several long sessions to understand tax in the first place, they might want to leave things in the hands of professionals. 

People who have multiple sources of income, several businesses, or demanding jobs already have enough on their plates. Therefore, they simply don’t have the necessary time that tax filing demands (and deserves). The little free time they do have, they would rather spend on something else (and who could blame them?).

However, hiring a personal accountant when someone doesn’t have the time for tax isn’t just a time-saving tactic. In general, it can also save money. When people don’t have the time to devote themselves to something and yet refuse to get help, they usually end up doing a lousy job. When it comes to taxes, that can cost them quite a pretty penny come April 15.

Therefore, it’s better to save both time and money by hiring a personal accountant.

When the IRS Comes Knocking

Even if someone took the time to do their own taxes and did it beautifully, they can still get a notice from the IRS. If that happens, the best thing to do is to hire a personal accountant. Not only will they handle all the paperwork, but they’ll also represent their clients before the IRS. That means less hassle and, ultimately, less time spent on taxes. 

IRS audits aren’t as frequent as they were ten years ago. However, they can still happen. What’s more, everyone should keep in mind that no matter who handles their finances and does their taxes (or represents them before the IRS or tax court), they are still the ones who are responsible for all potential mishaps. Thus, everyone should choose their accountants carefully and make sure to be in the loop regarding the audit.

The IRS knocking on someone’s door isn’t always the end of the world. However, dealing with an audit is more complicated than filing taxes. Even if the IRS just wants to confirm a small, legal transaction or check on the validity of the substantiation of an expense, that still requires a lot of paperwork. 

What’s more, many people don’t even know which papers to give to the IRS. What information is relevant and vital, and which is inconsequential? Instead of racking their brains, people with the dreaded IRS notice in their hands should go straight to a private accountant. They’ll know how to stop this little issue from snowballing into a massive problem.

When You Have More Money (Than You Thought You Would)

It’s not often that people find themselves in a situation where they have more money than they thought they would. It’s a fantastic feeling, but it’s also a complication.

Of course, having a high income complicates the tax situation. It also raises the possibility of an audit. People who earn more than $200,000 have a 3.7% chance of being audited by the IRS. The odds are even higher for those who earn more than a million dollars (12.5%). But people making that kind of money don’t exactly need to be told to hire a personal accountant. 

Still, to avoid messing up the potential audit, high earners need an independent representation with the IRS. That’s where private accountants come in.

K-1s

If a person has a Schedule K-1, that means they are a business partner or an S corporation shareholder. That also automatically means they fall into the high-income category.

This particular tax document is tailored for each business partner/shareholder, and they include it in the personal tax return. The K-1 states all dividends, incomes, and losses and shifts tax liability. That means that, instead of the business being liable, the partners who hold an interest in it take responsibility and accountability if something goes wrong. That, of course, means additional work come tax season. Hiring a personal accountant is probably a smart idea at that point.

AMT

People who might be subject to the Alternative Minimum Tax (AMT) will also benefit from a personal accountant. High state income tax, as well as itemized deductions, might make someone subject to AMT. If that’s the case, a lot of deductions will be eliminated. That leaves a lot of room for error, which is why a personal accountant is an excellent solution.

Inheritance and Other One-Time Payouts

Getting their hands on some unexpected money (by winning the lottery or getting an inheritance) is both a financial reprieve and a burden. When someone gets a large sum of money unexpectedly, their tax situation becomes complicated. 

Managing the money, paying tax for it, protecting it, and transferring it into other people’s accounts isn’t easy at all. Therefore, extra money means the person will need additional help and should definitely hire a personal accountant.

The same goes for receiving or giving large gifts. One might think that gifting money is as straightforward as transferring it to another person’s account, but that’s not how finances work. Or at least that’s not what the tax system will allow.

Not to mention, gifting money comes with some tax benefits that people might not know about. That’s also something a personal accountant can help with.

When You Think You Should Have More Money, But You Don’t

Annual tax returns are all about those deductions, right? Well, many people might actually be missing out on a lot of those because they don’t know about them. In other words, hiring a personal accountant can save money. 

Another way a personal accountant might come in handy is by helping with budgeting and cost-cutting. People who see their income gradually increase but aren’t seeing a rise in profits might need some help in these areas. 

Furthermore, those who are already in debt might think that hiring an accountant will spread them even thinner, but that’s not necessarily the case. The last thing a person in debt needs is to owe more money to someone. Therefore, an accountant who will help with budgeting, cost-cutting, and filing taxes to make sure there are no state or federal debts will be a godsend.

When You Have a Material Foreign Source of Income

If there are only three types of people who need a personal accountant, then it’s the wealthy, the self-employed, and the ones with a foreign source of income. 

All citizens are subject to income tax. Just because someone made money overseas doesn’t mean they don’t have to give a chunk to Uncle Sam. That entails both earned and unearned income, such as interests, dividends, royalties, capital gain, wages, and tips.

Some people can exclude up to $105,900 of their income earned from a foreign source. But they can do that only if they meet specific criteria. To make sure they do, they should hire a personal accountant. 

When You Rent Real Estate or Have a Business

Passive income is a dream come true of many people. Having a couple of properties, renting them, and seeing money pour in every month is great – until tax season.

All investments and income that comes from real estate will complicate tax filing. Therefore, a private accountant can help by making sure no deductions related to rental income are missed and that all landlord-related paperwork is filled and filed correctly. 

Business owners are used to saving money wherever they can. Starting a new business is by no means easy, and every penny counts. Therefore, new business owners should consider investing in a personal accountant who will not only do their taxes and make sure everything is spick and span, but also find opportunities to minimize taxes.

But that’s not all. When people start a business, they usually funnel their own savings and assets into it. Most people need help or at least guidance on how to do that.

When You’re Planning for the Future

It’s never too early to start planning for the future, getting affairs in order, and generally making sound financial decisions. One of those is definitely to hire a personal accountant. No matter what someone is planning — be it retirement in sunny Boca or their kid’s college tuition funds — having a personal accountant on their side will only make things easier.

Some people need an accountant to help them set up a college fund for their kids. Others, on the other hand, need help to fill and file paperwork for FAFSA and get help funding their kid’s education.

Most college kids don’t have assets to their name, nor do they have any income. However, people who are preparing to send their birdies flying off into the world of college need to make sure that their kids are financially “clean” and free of any burden. Most people don’t even know what can potentially hurt their kid’s chances of getting financial aid for college, which is why they need a personal accountant.

People inching toward retirement and thinking about finally cashing in on those 401Ks and all other hard-earned investments need to think about how they will handle this change logistically. 

Most people have at least some investments stashed somewhere. But even if they don’t have to hassle with exiting a business, selling properties, and transferring shares (even if they are only cashing in on their 401Ks), they should still get help. 

Is It Worth It?

Whether someone is a high earner, a landlord, a retiree, or merely a person in a bit of a financial pickle, hiring a personal accountant seems like an excellent idea. Although it can be costly and even make a big dent in someone’s budget, if a person has found themselves in one of these ten situations, the cost of a personal accountant will be worth it. After all, they’ll ultimately save both time and money.

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