The American tax code is extremely complicated. Many attempts have been made over the years to find a simpler method, but our economy is so large and so complex, that every attempt to simplify seemed to cause hardship for some tax paying group, and additional deductions, exemptions, or tax incentives got added to compensate. So for better or worse, this is what we have to work with.
This complexity puts you, the taxpayer, in a tricky situation. You could end up paying too much by missing some of the tax advantages you have available to you. But you also run the danger of paying too little, drawing the attention of the IRS, incurring interest charges and penalties, and risking an audit. Using the services of an experienced Pennsylvania tax accountant can protect you from paying too much or too little and actually save you money in the long run.
Complicated tax issues
Many additional documents, called schedules, must be completed along with the 1040 Form, depending on your tax situation. Your tax accountant will ask detailed questions about your income and expenses as well as your dependents to determine what deductions, exclusions, exemptions, and write-offs you may be eligible for.
Just a handful of special situations that a taxpayer may need help with include:
- Trust income
- Multiple jobs, with both W-2 and 1099 tax forms
- Other income sources, such as rental income or annuities
- Capital gains or loss, or using capital losses to offset capital gains
- Overseas income
- Multistate income
- Bitcoin, crypto, or other forms of virtual currency
- Sale of assets
Small business or entrepreneurship
If you are self-employed or you own a small business, a tax accountant can help you find all possible deductions and expenses to decrease your taxable income and save you money. However, many self-employed people and entrepreneurs do not realize they must pay quarterly estimated taxes rather than wait until tax day, and they are stunned when they are charged interest and penalties by the IRS. Some who send quarterly payments may estimate too low and are hit with penalties and interest charges just the same. It’s important to discuss your expected income with your tax accountant to estimate accurately, then remember to pay quarterly and on time.
Engaging an expert
There are changes to the tax code every year. An experienced tax accountant keeps up-to-date on these changes, is well-versed in all other aspects of the personal tax code, and has the expertise to understand how the pieces fit together for your particular tax needs. Your accountant will help you develop strategies for compliance and tax management while minimizing your tax exposure and saving you money.