1.Self-Employment Tax Laws
Taxes work a bit differently for self-employed individuals. They are expected and required to file quarterly estimates of their income. Then, they must pay a portion of what they earned to the Federal Government based on those earnings. This is because self-employed individuals must pay both sides of social security and federal income tax when they earn above $600 for the year. It can be a bit daunting to try to navigate your way through tax law. It is safer and easier to hire someone who is a certified public accountant (CPA).
You might have to visit with your CPA multiple times per year to get the estimated payments paid. It is definitely an added burden to being self-employed. However, the CPA can educate you on how to best minimize the amount that you have to pay in every three months.
2. You Own Rental Property or a Small Business
It is difficult enough to try to accurately pay one's taxes as an individual, but it gets far more complex and difficult when one owns a business or rental property on top of that. The New York Times interviewed one business owner who said that he was quite happy paying someone trained in accounting to assist with the taxes he needed to pay on his business:
Wirecutter editor Tim Barribeau says:"I've done [my taxes] myself once or twice, but every time it's been brutally stressful and a major source of anxiety, plus the absolute belief that I've done something wrong along the way." He adds, "Combine that with complicated tax situations, changing employment for one of us seeming every year, and freelance-y stuff on top … I'm much happier paying someone that I know knows what they're doing."
Many people express that they are stressed and/or intimidated by filing taxes. Each box must be checked for precise accuracy, and making a mistake can be a major issue if taxes are underreported. That could lead to backed payments, interest charges, and fines. Why bother with all of that when you can just hire a CPA who can get the job done properly on the first go-around?
Millions of individuals hire certified public accountants to help them with their tax situation. Here are some times to talk to an accountant.
3. If You Score a Gambling Win
The house always wins in the long run, but sometimes a gambler gets lucky and hits a nice score. There are people who manage to walk away with more than they started with when they are gambling. Those individuals need to understand that they will have to file this as miscellaneous income on their tax filings. Similar to self-employment income, report gambling income after making $600 earnings. Most people are not lucky enough to win that amount, but some people like to bet big and happy to strike a lucky chord. Some gamblers make a living wagering on various events. Those people are also required to submit the necessary paperwork to the IRS to account for their winnings.
The complexity of nailing down exactly how much someone has won or lost while gambling is never easy. Statements need to be acquired in most cases. Many just don't have the time to figure this all out on their own. An accountant can work on this and can make sure that the lucky winner does not pay the government any more money than what he or she is legally required to fork over.
4. You Are a Stock Market Player/Day Trader
It is exceedingly rare to be a successful day trader. Financemagnates.com cites research that estimates that only about three percent of all-day traders make any profit at all. However, only about one percent of people make anything over minimum wage. It is not a lucrative hobby for most people to engage in, and it gets worse. Those who do manage to earn a profit from day-trading will have to pay additional taxes for their short-term trading strategies.
Investments that are held for less than one year are considered to be short-term trades, and they are taxed at a rate that is far higher than typical income tax rates. This discourages short-term speculation in the markets. People still engage in this speculation of course, but they can end up paying the price either way. They either receive trading losses (extremely likely), or they receive high taxes on the profits that they do generate (also possible). Either way, it seems that day trading is a loser of a proposition for almost anyone to bother with.
Hire an Accountant Today
If you do happen to be one of those lucky few people who can thread the needle and manage to make a profit day-trading, please consider contacting a CPA to assist with your tax situation. Failure to do so could lead to misstated earnings, and that could lead to fines and fees that suck up any profit that you were able to generate in the first place. You are tempting fate if you attempt to do your taxes yourself on this type of operation. Make it easier on yourself and contact someone who knows what they are doing.