Personal Finance in Your 20s and 30s: Tame Your Taxes with Help - dummies

Personal Finance in Your 20s and 30s: Tame Your Taxes with Help

By Eric Tyson

Taxes are likely one of your biggest expenses. No one enjoys paying so much in taxes, complying with seemingly endless tax rules and regulations, and completing federal- and state-mandated tax returns. So it should come as no surprise that an army of tax preparers and advisors is standing ready to help you.

Do you need to use a tax professional? Good tax preparers and advisors can save you money by identifying tax-reduction strategies you may overlook. And they may reduce the likelihood of your being audited, which can be triggered by mistakes. Tax advisors can be of greater use to folks whose financial lives have changed significantly (those who are starting a small business, for instance) and to people who are unwilling to learn tax strategies to reduce their tax burden.

Tax advisors and preparers come with varying backgrounds, training, and credentials. Here are the three main types, with some info that can help you determine which one is right for you:

  • Preparers: The appeal of preparers, who generally are unlicensed, is that they’re comparatively less costly (their rate works out to less than $100 per hour) than other tax professionals. Preparers make the most sense for folks who have relatively simple financial lives, who are budget-minded, and who dislike doing their own taxes.
  • Enrolled agents: A person must pass IRS licensing requirements to be called an enrolled agent (EA), which enables the agent to represent you before the IRS. Continuing education is also required; EAs generally go through more training than preparers. EAs are best for people who have moderately complex returns and don’t necessarily need complicated tax-planning advice throughout the year (although some EAs provide this service as well). You can find contact information for EAs in your area by calling the National Association of Enrolled Agents at 202-822-6232 or visiting its website.
  • Certified public accountants: CPAs go through significant training and examination before receiving the CPA credential. And to maintain the designation, CPAs also must complete continuing education classes annually. Most CPAs charge $100+ per hour. CPAs at larger firms and in high-cost-of-living areas tend to charge more. CPAs make the most sense for the self-employed and/or for folks who file lots of schedules with their tax returns.