- When it comes to filing your tax return as an individual or business, everyone seems to ask the same question: Should I hire a tax agent or do my own taxes?
- There are benefits and drawbacks of each option - if you're an individual with relatively simple income streams then lodging your own taxes is straightforward enough.
- If you're a business owner or an individual with more complex income streams or capital asset gains/losses, then the return of hiring a tax accountant can outweigh the investment.
- Keep reading to learn when to hire a tax agent versus DIY and get advice on how to prepare for your first meeting with your tax agent.
So, the million-dollar question: Should you do your own tax returns or engage the services of a professional?
There are pros and cons to both options.
As a chartered accountant and registered tax agent, I would advise that it is simple to do it yourself if you are an employee earning a salary or wage and perhaps get some interest or dividends and have a few standard work-related expenses.
The Pros of Doing Your Own Taxes
With the ATO’s e-tax (online lodgement portal), preparing your own tax return can be simple. There are pre-fil options and a helpful call centre on-hand to answer your questions. The ATO provides a step by step guide for e-tax users, and any updates to e-tax are noted on the starting page – which ensures that you are alerted of any changes. The advantages of lodging your own tax return are that you can do the tax return in your own time, and take the time to check the deductions. You also save the tax agent fee.
The Cons of Doing Your Own Taxes
The downside of lodging your own tax is that the process can be time consuming, and due to unfamiliarity, can be overwhelming. As you are only doing this once a year, you may have forgotten what you did last year. The e-tax process forces you to complete each screen or section of the tax return irrespective of relevancy, this may make it complicated for you to consider if an item is applicable or not.
What it boils down to is, can your time be better spent focusing on something else rather than navigating the complexities of a tax return and an e-tax system? Ultimately, it’s your choice.
When Should You Hire a Tax Agent?
My strong recommendation for more complex circumstances is that professional tax advice is worth its weight in gold and that the returns outweigh the investment. For example, if you run a business, have made capital gains or losses on the sale of an asset during the financial year, own an investment property or have complex deductions, it makes sense to speak with a tax professional.
What Are the Pros of Hiring a Tax Agent?
There are a number of advantages to seeking professional tax advice:
- Tax agent fees are tax deductible
- Tax-filing extensions
- Eliminate mistakes
- Deal with complex circumstances
- Save on taxes in the long run
Firstly, the fee you pay can be claimed as a tax deduction in the following financial year. Secondly, you are able to obtain an extension when filing through a tax agent which also allows the payment of any tax liability to be delayed until May of the following tax year.
Overall you will save money by eliminating the possibility of mistakes and revised assessments by getting the tax return done professionally the first time. Tax accountants are qualified to deal with capital gains, negative gearing and complex deductions - areas which might be overwhelming for the DIY option.
You can also reduce the fees you pay by keeping good records. If you’ve kept meticulous records of all your deductions (and kept the receipts), then tax is a simple matter of adding all the deductions and storing the receipts somewhere safe if you need them. This makes your tax accountant’s life easier and saves you fees in the process.
Instead of focusing on saving some money on your tax return, perhaps a shift of mindset is in order. Look at what your business stands to gain by using a tax accountant that provides value far greater than the cost of the return.
What Should You Look for in a Good Tax Agent?
It's important to look for following things in a tax agent:
- Ensure they are registered with the Tax Practitioners Board
- They can build a good working relationship
- They have extensive knowledge of tax law
- They offer tax planning
1. Ensure they are registered with the Tax Practitioners Board
Before you entrust your taxes to anyone, check your tax agent is registered. You can find a registered tax agent or check whether a person is a registered tax agent at the Tax Practitioners Board website. Ask your friends, families and trusted business connections for referrals and read reviews and testimonials.
2. They can build a good working relationship
You need to find a tax accountant that you are able to connect with, who understands your circumstances and with whom there will be continuity. You would hate to have your return completed by a pop-up tax shop in a shopping centre and find that the same pop-up shop is not there, and you have to start the process of depreciation, business or investment property schedules from scratch again.
Below is a testimonial from a client with experience from converting from a pop-up tax agent to a qualified chartered accountant:
"I used to use one of those companies that advertise heavily leading up to tax time and that employ tax agents to process tax returns as quickly as possible which seemed appealing, quick and easy… until someone suggested to me that I go to a chartered accountant. I would never go back to a generic tax return agency again after seeing the difference in my return that year and the following years. Rather than following a prescribed script to process my tax return as quickly as possible and turn customers over, by going to a chartered accountant I felt I got an individualised service that resulted in a much more thorough return and advice as to what I could claim for the following year that I wasn’t previously aware of." - Kylie Rose, Marketing Admin Solutions
3. They have extensive knowledge of tax law
As with the above client, there is the potential that a tax agent, someone who spends all their time studying and dealing with tax law, might have some suggestions as to how to improve your tax return. A tax agent should be aware of all the deductions that you are eligible for, which you might otherwise have missed. If you use a qualified and certified accountant, you can have faith that your tax will be completed effectively and without errors.
4. They offer tax planning
A good tax accountant should also do tax planning with you, and should save you money. A good accountant will help with profit and growth strategies too.
Questions to Ask When Hiring a Tax Agent
If you have decided to use a tax agent, make sure you ask the following question when hiring:
- Are you available year-round? (some accountants only work during tax season while others only work at other specified times throughout the year)
- How do you charge for your services? (e.g. fixed fees or an hourly rate)
- What are your qualifications?
- Do you provide advice on how can I improve my business and how I can save taxes?
- What is your experience with business accounting? Or do you focus on salaries and wages earners?
Once you've hired a tax accountant, the next thing is to prepare for your first meeting. The main thing is to be proactive and organised. Keep good records (as mentioned earlier) and get in touch with your tax agent prior to the 30th of June to see if there is any tax planning that can be conducted before the end of the financial year.
How to Prepare for a Meeting with a Tax Agent (For Business Owners)
If you're a business owner, follow these tips when preparing for your meeting with a tax agent:
- Make sure you have a profit and loss report showing the business income and expenses or invite your accountant into your cloud accounting data file;
- Make sure your annual numbers reconcile to the BAS returns and STP summaries lodged;
- Conduct a physical stock-take;
- Have copies of bank statements and any loan accounts as of 30 June
- Ensure the fixed asset register is updated and depreciation is run
You can also ask your accountant some questions at the appointment such as:
- Is my current business structure the correct one?
- How is my business performing compared to previous years, and is there anything I can do to improve?
- Are there any tax legislation changes or updates that are proposed that may impact my business?
- Are there any tax planning strategies that I can do?
- How much money have I (as the sole trader) drawn from the business?
How to Prepare for a Meeting with a Tax Agent (For Individuals)
In addition to keeping good records of your work-related expenses during the year, ensure that you have kept logbooks for vehicles that you wish to claim a deduction of your work-related mileage for (for at least 12 weeks) and have records of the work-related use percentage of expenses like telephone and internet.
In addition to work-related expenses, keep records of other deductions like self-education expenses, donations to charitable organisations, income protection premium information and any personal superannuation contribution acknowledgements from super funds.
You will also need to have things like investment income information (interest, dividend statements, rental property agent annual statements), any capital gains information (including cryptocurrency assets) or foreign income records.
In terms of timing, for individuals who wish to lodge tax returns themselves, you have until the 31st of October following the end of the financial year you are lodging for. If you wish for a tax agent to lodge your return, they do get an extended lodgement date (March or May of the following year)
However, we recommend that you don’t leave lodging your tax return until the last minute, even if your tax agent gets an extended lodgement due date. It's best to know and understand the tax position you are in so that you can budget and plan accordingly, and you know what your after-tax profits are.
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