How much to pay someone to do your taxes

Long processing delays due to the pandemic have prompted the IRS to warn taxpayers to take extra care preparing their taxes this year. Tashiana and Luis Diaz from the Bronx, N.Y., are taking that warning to heart and hiring a tax accountant. 

Last year, Tashiana, 30, a program manager at a nonprofit, and Luis, 39, a conductor for the Metropolitan Transportation Authority, tried to do their taxes themselves using tax-prep software. But because they weren’t certain they were claiming all of the deductions they were entitled to, they also paid a visit to a tax preparer, an IRS-certified agent who opened a low-fee pop-up shop in their neighborhood. In the end, he didn’t inspire much confidence.

This year they plan to turn the job over to a certified public accountant with deeper credentials and tax-planning know-how. Like many Americans, they received Economic Impact Payments, or stimulus relief money, from the federal government in 2021. And like many parents—they have a 3-year-old son—they also received advance Child Tax Credits in the form of monthly payments. 

For them and millions of others, these payments are injecting even more uncertainty and confusion into this year’s tax filing process. 

“We don’t know how all of the money we got last year is going to affect us or how we put it on our taxes,” Tashiana says. “We’re not going to hire any old body who’s just been trained for the season. This year we have to make sure the person we hire knows their stuff.”

People who prepare returns for a living know the process can be overwhelming for many taxpayers. 

In addition to staff shortages at the IRS caused by COVID-19, several pandemic-related tax changes have led to serious backlogs at the agency, making delays more likely. Here are two of the main ones.

Stimulus payments: Unlike the two stimulus payments in 2020, the payment last year was expanded to include dependents beyond children under age 17. Eligible taxpayers who claimed college students, adults with disabilities, parents, and grandparents as dependents on earlier tax returns could also receive more money. That means some taxpayers who had not previously claimed eligible dependents but can now claim them may not have received the third payment—or didn’t receive the maximum amount to which they were entitled.

To claim a Recovery Rebate Credit for those funds, they’ll need to include the amount of stimulus money they received last year, if any, and verify if they had eligible dependents in 2021.

If you’re not sure how much stimulus money you received last year, you can check your IRS account online. That information will also be in a document, Letter 6475, that the IRS says it’s mailing out through March of 2022.   

Child tax credits: Figuring out the Child Tax Credit you’re due is, if anything, even more confusing. The amount you received last year is supposed to be only half of what you are eligible for. But to determine exactly how much is still outstanding, you’ll need to complete yet another form, IRS Schedule 8812, and attach it to your 1040 form. 

As with the stimulus payment details, you can check your online IRS account to see how much you received last year in child tax credits. Or look for another form in the mail from the IRS, this one called Letter 6419. The IRS says it sent it from December 2021 through January 2022.

Diana Sabari, who owns an ATAX income tax preparation franchise in the Washington Heights neighborhood in Manhattan, says many of her clients are extra concerned this year. Her customers—many of whom are Spanish-speaking immigrants from the Dominican Republic, families, and older people—are particularly uncertain about where to track down the information they need, and how their stimulus payments and child tax credits will have an impact on their taxes.   

She says they seek the peace of mind that a professional preparer can offer, especially if they’ve previously made an error in their filings or owed money. 

“They’re just so scared,” Sabari says. “It becomes chaos, the back and forth with the IRS. And they usually end up paying money that they didn’t need to.”

Ted Rossman, a senior tax industry analyst at Bankrate.com, understands why more people may want to hire a CPA this year. He says the pandemic hurt many families’ finances, making it even more imperative for those who are owed a refund to get it fast.

But he says most people, even those who received stimulus payments or child tax credits, should still be fine preparing taxes on their own with Free File, available through the IRS website, or tax-prep software such as H&R Block and TurboTax. Most enrolled agents at pop-up tax-prep providers, whose rates are generally cheaper than a CPA, should also be able to handle it. 

While it’s not wrong to want to enlist the extra help of an accountant, he says, “you’re just going to have to pay a little extra for it.”

The Diaz family says they’ve been quoted rates of up to $500 to do their return. In 2020, the average fee for having an accountant do a nonitemized 1040 federal and state return was $220, according to a survey of tax preparers and accountants from the National Society of Accountants. The average itemized Schedule A federal and state return cost $323. 

Rossman says that folks with more complicated tax situations, like business owners, people who share custody of a child, those who have received a big inheritance, or people with lots of capital gains from cryptocurrency transactions and other investments, may want to consider the professional tax help an accountant can provide.

In fact, he says hiring an accountant from time to time can be a financially healthy habit for just about everyone. “It’s a good X-ray into your financial life and a good time to reassess where you’ve been, where you’re going, what kind of year it was for you financially, and what adjustments you might want to make moving forward,” he says.

For example, Tashiana says her husband has adjusted his withholding, hoping that will help reduce the amount of tax they owe. 

But they’re feeling the pressure of the April 18 tax filing deadline. They usually file early—as soon as their employers send them their W2s—but for now, they’re still on the hunt for an accountant they like.

“We need to interview people to see who’s going to be the best fit to handle our finances this year, because there’s just too much that we have at stake here,” Tashiana says. (Read more on how to find a good tax preparer.)

There are a few things to consider when deciding whether to hire an accountant. Here are the main ones:

When to Consider Doing Your Own Taxes

Your taxes are straightforward, which means mostly income without itemized deductions. “More than half of the Americans who file taxes every year do not itemize their deductions” but rather claim the standard deduction, says Janet Lee Krochman, a CPA in Costa Mesa, Calif.  If this describes you, “right out of the gate you can probably do the return yourself.”

You’re retired. Krochman says if you’re getting Social Security and one pension, it’s straightforward to do it on your own.

You’re a student, and you most likely have just one or a few W2s, which require you to fill out just the 1040 tax form, Krochman says.

When to Consider Hiring an Accountant

You’re self-employed or a small-business owner. If so, you’ll need to file a Schedule C tax form, which requires you to sift through many documents and receipts, Krochman says. “The fee you pay a CPA is mostly for pain relief,” she adds.

You inherited money in the form of investments. If you inherited cash, generally with federal taxes there really isn’t any reason to hire an accountant because the money isn’t taxable, Krochman says. The situation is more complicated “if you inherited stocks, bonds, or mutual funds, in which case turning to a professional makes perfect sense.”

You sold investments, traded stocks, or used or sold cryptocurrency. Krochman says there’s a copious amount of information that’s required when reporting activity from investments. “This is an area where it’s easy to get tripped up” and where a pro can help you out, she says.

Octavio Blanco

My mission: To write stories that broaden readers' horizons and offer new solutions they can apply to their lives. Who I write for: My family, my friends, my neighbors, myself, and—most important—you. My passions: Music, art, coffee, cheese, good TV, and riding my electric bike (for now). Find me on Twitter: @octavionyc  

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