Ask Tax Dad: Should I Hire A Tax Preparer? What If I Win The Lottery?

Tax Dad and Lap Dog

Tax Dad and Lap Dog

Usually, our staff Certified Tax Cat handles questions about taxes, but he got into some really bad ‘nip and is taking the year off. Filling in for him is Laura’s dad, a retired accountant and real live independent tax preparer. Exclusively on Consumerist, Tax Dad answers your questions.

One thing that many different readers had to ask tax Dad is whether they need to hire a tax preparer, and how they should find one if they need one.

Take it away, Tax Dad…

For most people, with all or most of their earnings on a W-2 or in bank interest (remember bank interest), the income tax is fairly simple, and does not require a professional. The IRS encourages electronic filing, and has contracted with a number of the more popular tax software people, such as H&R and Turbotax, to provide free e-filing for those who earn less than $57,000.

Caution, you must go to the IRS.gov website and sign in under ‘freefile’ to avoid fees. They will ask a number of questions that walk you through the process, remind you of possible deductions or income you may not think of, and file your return at the end, even allowing you to print a copy for your own records. The price is right.

Some providers will advertise free filing on ther own website, only to charge you $30 or more to file a state return. Go to the IRS site. IRS even provides answers to most of your tax questions, with many helpful publications. For most, Publication 17 is the one to look for.

For higher income taxpayers with a home, mortgage, dependents, self-employed, rental property, etc, a reputable tax preparer is probably a sound investment. You can also purchase tax software that will help you with step-by-step and let you file electronically, but that depends on how familiar you are with computers and with numbers. A tax preparer can help with that part. Check with friends, co-workers, or relatives for recommendations. If your workplace has an accounting department, check with them. Many of my clients are my former co-workers.

I would advise avoiding the big tax-prep mills, but that is just me. Look for a preparer with reasonable prices, experience, electronic filing, and one who will be available year-round. If they work solo, ask them if they have a colleague who will back them up in case of illness or other catastrophe. Sometimes, the IRS has questions after you file. Shop around. The lowest price may not always be the best.

Megan writes:

My mom says I might be able to deduct legal fees from last year
stemming from my divorce (representation, filing fees, etc.). Can I?
If so, how much, and how?

As usual, Megan, your Mother is right. IRS Pub 17 says that you can claim legal fees for a divorce as a itemized deduction, assuming that you do itemize deductions, so long as you have a detailed statement from an attorney of the legal fees. The amount would be on that statement.

CLARIFICATION: We’d like to point out that you can’t claim all of your legal fees from a divorce: just the portion from your itemized bill that concerns tax advice. 

Erik writes:

Should I hire a tax professional this year, or use TurboTax?

My taxes are generally pretty dull – two income family, one major
deduction (mortgage), very little investment income. But this year,
I’ve got a big change: my wife won $480,000 in the lottery! The
lottery agency took out for Federal taxes, and told us that there
wouldn’t be state taxes. I got a “W” form (I forget which one) for the
lottery earnings.

Except for the big windfall, I would just get TurboTax. But the
lottery has thrown a wrinkle into my plans. Any suggestions?

Congratulations, Erik, on your win. I must assume, with this windfall, that you are consulting a reputable financial advisor to help you in investing all or most of it. He/she should also be able to help you in preparing your tax returns and perhaps saving you some taxes.

For example, you might be able to deduct all your gambling losses up to $480,000, provided you have a closet full of losing scratch-offs or a letter from your favorite casino. Also, you do not say what state you live in, but if your state has an individual income tax, they will also want a share of your winnings, and will be looking for it. In this case, a professional tax preparer would probably be a wise investment.

Please remember that advice from Tax Dad is not intended as a substitute for consulting your own real, live tax preparer or Tax Cat.

Have a question for Tax Dad about your federal or state tax returns? Send it to us at tips@consumerist.com with “ASK TAX DAD” in the subject line.