The federal tax code changes constantly. With so many new laws about deductions and credits, it can seem overwhelming to tackle your yearly income tax preparation on your own. If you choose to seek professional help, there’s certainly no shortage of tax preparation services to help you navigate the code as it applies to your personal situation.
Roughly 30% of Americans, however, choose to file their own taxes.
If that many people are comfortable filing their own taxes, it can’t be that complicated, can it? What’s the difference between these two methods of tax preparation, and how do you determine which is right for you?
Here are four questions to ask yourself as you decide how to file your taxes this season.
How Easy Are Your Taxes?
If you’ve always filed with a CPA or tax service, you may not know the answer to this question. A good measure of the ease of your taxes is which IRS form your accountant files for you. If you’re filing a 1040 EZ or standard 1040, your taxes are probably not that complex.
On the other hand, if you have a long list of deductions, own property, maintain certain investment or retirement accounts, or are self-employed, filing may require a good understanding of current tax laws. Unless you have a background in accounting and/or access to free tax advice, complex tax situations are best handled by a professional.
How Comfortable Are You with Filing Alone?
No matter how easy your tax situation may be, you may still not feel comfortable filing them yourself. Rather than risk making mistakes or enduring the stress of dealing with something out of your comfort zone, take your taxes to a professional.
The good news is that many tax preparation businesses such as H&R Block or TurboTax have become extremely affordable. If you have no concerns about filing your tax return accurately, however, filing online will still save you money.
How Important Is It to Save Money on Tax Preparation?
The truth is that no matter what kind of a deal you get, it’s going to cost money to have someone prepare your taxes. Although some tax preparation chains offer competitive rates as low as $50, the average fee will be a few hundred dollars. While this fee is usually deducted from your total refund, it won’t help if you’re already expecting a small refund or owe taxes.
If saving money is important, you may want to consider purchasing some tax preparation software, filing your taxes using an online service, or using resources on the IRS website. Some online tax services offer a free basic version that only requires you to pay a small fee to import previous years’ tax information, or if you want an accountant to review your return before it’s filed. You’ll also have to pay extra for the convenience of filing your state tax return at the same time. As long as you don’t pay for features you don’t really need, this is a much cheaper way to go.
How Much Time Are You Willing to Invest?
Doing your own taxes will require you to spend in time what you’re saving in fees. Tax professionals are paid to be fast and accurate. Since you’re not a pro, you’ll need to take your time preparing your taxes to ensure you don’t make mistakes or leave out important information.
It’s a good idea to gather all the necessary documents you’ll need before you start your taxes, so you can focus on them uninterrupted. Give yourself several hours to complete the task. If you just don’t have the time to do it right, it’s better to pay someone else to.
Are you doing your own taxes this year? Why or why not?
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It made sense to me when you suggested hiring a professional rather than making mistakes or enduring the stress of dealing with something out of your comfort zone. My uncle will surely appreciate this tip because he has been experiencing difficulties understanding tax documents. He said that he does not think that he could handle it because he is clueless about most of the tax terminologies being used. I will share this with him.
I do everything for myself that I can, and that includes taxes. I believe training is the key to success. An alternative to blindly following a computer program or paying a professional several hundred dollars is to go to tax school and learn how the tax system really works. I did just that when I went through a life change and moved into a much different tax status. You must have a firm foundation in tax regulations to properly plan for retirement or even investing. Can you claim your girlfriend who lived with you for 6 months last year as a dependent? How about your mother, who lives in her own home but you pay all her bills? Which is better, starting a business or buying rental real estate? What exactly is the difference between short term and long term capital gains? What change is there in my final refund if I put $1,000 in my IRA? $3,000? What impact does a 1099-MISC have on my taxes? (Lots is the answer to the last 3 questions.) There is some expense for the course, but if you find you like it, you may be offered a part-time temp job during tax season. I really believe the H&R Block billion dollar commercial is true. If you do your taxes yourself, Liberty tax service has a free online tax program at http://www.freetax.com. The only ‘catch’ is that if you run into something difficult the program will recommend the closest franchise. Liberty stores also offer free consultation if you have a tax question, the same as most other tax franchises. Federal tax law changes get a lot of press coverage, but state taxes are largely ignored by the 6 o’clock news. State taxes are especially difficult if you worked in one state and lived in another, or you are a resident of one state and your spouse is a resident of another state, or if you moved, etc.
I’m definitely not doing my own taxes simply because it’s too complicated!
I use H&R block software which had worked pretty well for me. They used to have a deal where if you buy their software you can have one of their tax people look it over. I’m not sure if they still do it but very much worthwhile.
I love doing my own taxes. Even though it takes time, I learn something new every year, and it helps greatly in knowing how to spend my money wisely the next year and what receipts to keep.
And yes, I do repair my car, and install my HVAC myself. I enjoy learning and getting it done for cheaper.
I’m with you Andrew, it is an invaluable learning tool that aids in planning for the near and distant future. It is important to know how your decisions impact your bottom line tax wise and wealth building wise. I haven’t repaired my HVAC but I did repair my dryer and install insulation in my attic.
To declare and know all the new rules and deduction things is difficult. I always use professional help. I do not think that you repair your expensive car or install your new heat pump yourself, etc. Hire professionals always, it’s a little more expensive but it pays off, especially for finding all the deductions.
I had always done our own taxes as I enjoyed doing so, but once our business started taking off we hired a tax person as it just became too much for me to handle. I’d much rather pay someone who knows what they’re doing who can maximize what we can get back and free up my time as well.
No need to pay a ” professional” unless it is extremely extremely complicated. There are no more tax shelters so no need for a CPA. Turbotax handles it all easily and it is really cheap.
We choose to use turbotax and it has worked really well for us. We have the benefit of knowing a CPA who is willing to check them over for us before we submit them. I am a pastor so my taxes are a little more complicated (I have dual tax status) but turbotax is able to handle that easily.
Taxact.com online. It’s not as pretty as TurboTax, but the price is great, $13.95 to e-file both federal and state returns.
Turbotax, same as the last ten or so years. It’s only an issue if your return is complicated. Since I paid off my mortgage, I don’t have enough deductions to itemize. Paying for my own healthcare this year may change that, but I don’t think so.