5 Signs You Probably Need an Accountant

Do you dread filing your income taxes each year? Does preparing your taxes take weeks of your time? And once you've sent your papers to the IRS, do you have the sneaking suspicion that you might not have taken all the deductions to which you are entitled?

You might need to hire an accountant.

"Hiring an accountant depends on whether your knowledge, time, and money are best spent on bookkeeping, loan application, and tax preparation, or whether you have higher priorities," says Valrie Chambers, associate professor of taxation and accounting at Stetson University in Celebration, Florida. "A business owner who excels at sales should probably use her time increasing sales rather than learning and doing accounting. That strategy is just more profitable for the business."

Here are five signs that you need to hire an accountant.

1. You Owe the Government a Lot of Money Each Year

Taxes become complicated when you work for yourself or run your own business. Depending upon how much you earn, you'll have to pay estimated quarterly tax payments four times every calendar year — January 15, April 15, June 15, and September 15. These payments are supposed to guarantee that you won't owe the federal and state governments thousands of dollars each year in taxes.

But if you find that when you file your income taxes each April 15 you do owe the state and federal government $3,000, $4,000, $6,000, or more, you're doing something wrong. An accountant can help you determine the quarterly tax payments you should be making to ensure that you're not hit with a huge tax bill every April 15.

2. You're Worried That You're Missing Big Deductions

Yes, hiring an accountant takes money. But doing so can also save you money. An accountant can prepare your annual income tax returns to make sure that you're not missing out on any important deductions for your household or your business. Missed deductions can cost you thousands of dollars each year in taxes.

3. It Takes You Days to Complete Your Taxes

Filing your income taxes isn't necessarily easy. But it shouldn't be a draining chore, either. If your life has gotten complicated — maybe you've started your own consulting business on the side, perhaps you've adopted and are struggling to understand how the adoption tax credit works, maybe you're not sure how to deduct the bills for a serious medical procedure — you can bet that your income taxes have, too.

If it is taking you a full week to complete your taxes, it might be time to think about hiring an accountant. You just have to determine how important your time is: Would you rather spend your time earning more money or poring over your tax forms?

4. You Own Rental Real Estate

Renting an apartment or two is a great way to earn passive income. But doing so can also complicate your finances. That's why it makes sense to hire an accountant to make sure that you don't miss any important tax deductions related to rental income, and that you file all the paperwork necessary when working as a landlord.

"There comes a point when personal tax software is not sophisticated enough to take into account the complexities of real estate investments," says David Reiss, professor of law and research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School in New York City. "If a taxpayer has multiple properties that have both a personal and investment component, tax software may not be able to accept all of the relevant inputs and generate the correct output."

5. You've Never Been Able to Balance Your Checkbook

If you're struggled for years to balance your own checkbook — if overdraft charges from your bank aren't a rare enough occurrence — it might be time to invest in an accountant, especially if you've started your own business. It's bad enough to struggle with your personal finances, and you don't want to operate a business that doesn't have its books balanced.

Chambers recommends that you meet with several accountants — she recommends that you only work with Certified Public Accountants (CPAs) — before hiring one. Ask accountants how long they've been in business, whether they've worked with clients at your income level, how much they charge, and what services they'll provide. Ask, too, for referrals from accountants' current clients.

"Meet with the CPA to see if you are comfortable sharing your information with this firm," Chambers says. "CPAs should be forthcoming about their fees. When they are hired, they normally spell out what they will do for those fees in an engagement letter. Finding an accountant who is right for you is part research, part comfort level."

When did you realize that you needed an accountant?

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