ne of the hardest things to learn to do is to manage your money. When you first start out after school, you’re not used to having a lot of it, so it makes sense to just not spend above your limits. But once you get your first job, first apartment or house, or first car, it’s definitely time to learn how to spend, and save, your money wisely. As you already know, where there’s money, there’s always taxes and laws to follow, and it’s always a wise decision to make sure you’re in compliance with both. Not doing so can result in a pretty bad financial headache, not to mention a possible audit by the U.S. government.
Which is why we’ve decided to tackle the topic of those nice people who can help you manage your money and ensure you’re always on the right side of the law-- accountants. But do you really know what it is they do, and more importantly, if you should have one? Read on to learn:
- What exactly does an accountant do?
- When should I hire one?
What Are Accountants?
Professional tax managers
An accountant, sometimes known as a CPA (certified public accountant), is a licensed professional who handles, taxes, bookkeeping, and the preparation and management of financial documents. They can work for a business or corporation or set up their own practice. Accountants are governed by state-specific requirements and after testing, receive a national certification. Under this certification, they are required to practice according to a set of ethical guidelines, where they are required to be honest and not negligent in their duties to their company or client.
Accountants are very helpful for specific tax situations, and can help you navigate the confusing world of tax law. They are also an indispensable resource when you arrive at the point in your life when you are ready to start making investments. Not everyone can be a tax and investment professional, so when the time comes to start making these kinds of decisions, it’s a good idea to trust the skill and advice of an accountant.
Don’t forget about financial planners
Accountants aren’t the only ones out there that can help you manage your money though. Financial planners, or advisors, are there to also help you make sound financial decisions. They work with clients who are interested in creating and maintaining a budget, which can help achieve their financial goals. Depending where you are in life, you financial goals are going to be different. A young adult just starting their first job is going to have some different goals than a married couple who are welcoming their first child.
People employ the services of a financial planner when they have a hard time creating a budget that works with their debt to income ratio. This is something a lot of people have a problem with, especially with student loans, car loans, and credit card debt. It’s hard not to have debt in our society, but there is a right way and a wrong way to manage it. Another big thing that financial advisors help out with is saving for retirement. There are so many different ways to invest, and all kinds of funds, stocks, and accounts you can use to start saving, that it becomes overwhelming. A financial planner can make a plan for you and manage something a lot of adults like to have-- the all important sounding investment portfolio.
When Do I Need to Hire an Accountant?
So now that you know the difference between an accountant and a financial planner, now it’s time to determine whether or not you might benefit from having an accountant. Just because you reach a certain age doesn’t necessarily mean you’ll need some extra tax support or financial advice. Everyone has their own path to financial wellness, but it’s helpful to know the circumstances that might arise where having an accountant in the wings is not only recommended, it’s in your best interest!
Changing tax laws
Taxes, like death, are just a part of life. No one is super excited to have to pay them, but we all understand why we pay them. You probably enjoyed safely driving to work today on paved roads and inspected bridges-- thanks to taxes. They are a necessary part of life, and as long as you’re employed and earning money, you’re going to be responsible for reporting your income to U.S. government each year to ensure you’re paying your share.
It sounds straightforward enough, but sometimes it isn’t. Tax laws change a lot, and unless you’re scrupulously keeping up with the IRS website, chances are you might miss something. An accountant is up to date on all the latest changes to the tax code, and knows how to apply that to your specific situation to help you get your best return. They also ensure your taxes are done correctly, giving you peace of mind.
As mentioned above, accountants and financial planners are good at reading your current situation and creating a plan to help you realize your financial goals. If one of those goals is investments, then it might behoove you to enlist the help of an accountant. While you should be saving for retirement, there are also lots of other reasons to have investments. One of the major ones is to help you get a bit more financial freedom, and begin to have your money work for you. Some investments can prove to be very profitable, and can generate a nice source of income.
Speaking of income, if you have an income upwards of $200,000 it’s definitely a good idea to have an accountant help you with your investments and taxes. People that earn this amount and above are at a higher risk of an audit, and if and when that occurs, it’s recommended to have a financial expert on your side. During an audit, an accountant is also authorized to represent you before the IRS, which is definitely another perk.
Multiple sources of income
Even if you don’t have a huge income, but you have multiples sources of your income, and an accountant can help you manage all the paperwork that comes along with this. It’s not always as easy as filling out a simple W-2, and depending on where you’re generating your income from-- real estate, investments, or contracting side gig-- there are different ways to report this income. We can’t even imagine trying to figure those out all by yourself with just the help of the U.S. tax code, so bite the bullet and hire an accountant. This is what they’re trained to do!
More and more people these days are starting to realize that a 9-5 job might not be for them. Don’t get us wrong, 9-5 jobs are fantastic, and a lot of people enjoy the security and stability that they offer. But there are other people who would prefer to be their own boss, and decide to start their own business. This sounds incredibly scary and intimidating and will be the focus of a future Adultist article, but if that’s what you decide to do, more power to you!
Starting your own business doesn’t have to mean opening up a brick and mortar store either-- plenty of people are making the move to freelancing or running their gig from their home office. This is different than reporting your taxes when you have an employer, so if you’re self-employed or running your own business, you’re going to need an accountant. Not only will they take the guesswork out of doing your taxes correctly, they can also help you claim as much as possible on your returns. Self-employed people can qualify for a lot of write offs, and your professional tax advisor will be sure to find them all for you, saving you money.
If you’re considering investing in real estate, or thinking about owning rental properties for additional income, make sure you get an accountant to help you out. There are specific tax situations that can arise when you own rental properties, so best not to mess those up. There are also write offs associated with owning rental properties as well, so unless you’re interested in keeping up with all the tax law changes each year, hire yourself an accountant instead.
Unfortunately, sometimes bad things happen and you can fall behind on reporting or paying your taxes. An accountant can help you understand exactly what you owe, and create a plan to help you get out of trouble. They will also work with you so that you hopefully never find yourself in this situation again. Owing back taxes can be a giant pain, so do yourself a favor and enlist the help of an accountant to put an end to it.
Accountants are a great way to ensure you’re following all the tax rules correctly, and are on the right path to realize your financial goals. There are many reasons people hire accountants, and depending on your financial situation, you might want to consider hiring one as well!