Military families have a wide variety of options for preparing their taxes, including on-base Volunteer Income Tax Assistance (VITA) program, free online tax prep through Military OneSource and other free programs offered through the IRS Free File program. These are all solid programs and will provide enough help for most military families. But at some point, folks may start thinking that they want to start an ongoing relationship with a tax professional.
When should you hire someone to prepare your taxes for you? Here's some ideas.
When You Sell A Property, Especially A Rental Property
When you sell a property, there may be more complex tax questions. And the questions increase if the property has been a rental. Basic tax help may not be able to get into the nuances of calculating capital gains, or help you amend previous years if you have failed to take depreciation properly.
Personally, I think you should probably think about having your own tax professional as soon as you turn a property into a rental. Free tax help may be able to help you with the basics of your Schedule E, Supplemental Income and Loss, but a professional who knows you and your situation may be able to see things you have missed or make recommendations for how to do it better.
If You Own A Small Business, Or You're Paid As An Independent Contractor
This may be a question of scale - how much income or expenses do you have? You probably don't need a tax professional if you have the most basic small business income. But if you have any quantity of expenses, or you think you might qualify for Qualified Business Income Deduction.
Keep in mind that you can deduct at least a portion of your tax preparation costs as a business expense.
When You Need Help With Strategy
The amount of tax you owe is based in law, and it's not wise to try to work around those laws. But there are a variety of legal and ethical ways that you may be able to minimize your tax burden over time. Whether you're wondering whether your TSP contributions should be in a Roth or traditional account, or teetering on the edge of the Earned Income Tax Credit, a professional may be able to identify opportunities to make choices that provide the biggest tax benefit.
Where To Find A Tax Professional
There are two basic types of tax professionals.
1. Enrolled Agents (EA) are certified to represent taxpayers to the Internal Revenue Service. They have to take a tough exam to demonstrate their understanding of the tax laws.
2. Certified Public Accountants (CPA) have completed a college accounting program and taken an accounting exam. Some may have further education specifically in tax issues. Not all CPAs are tax professionals. CPAs are licensed by state boards.
While attorneys may be able to help you prepare your taxes, they must have completed special tax training in addition to their Juris Doctorate degree to do so. They also must have passed an examination that permits them to practice law in their respective state.
A good place to start looking for a tax professional is to ask your military friends and mentors. You can also ask your family members, but keep in mind that not all tax professionals understand certain aspects of tax laws as they apply to the military. And that's an important distinction: be sure that you find someone that understands the military, because you may have special protections or exceptions to rules, such as the military extension to the capital gains exclusion, or the state tax protections under the Servicemembers Civil Relief Act.
Most military families will be well served by the free programs available based on their military service, but at some point, it's time to move on to help. If your situation has gotten a little more complicated, this might be that year for you.
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