Should you pay someone to do your taxes?
Every year when tax season rolls around, millions of Americans ponder whether or not they should hire someone to do help them file their taxes. With all of the new online platforms charging next to nothing to get the job done, it’s no wonder why so many people are starting to pause before scheduling an appointment with an accountant. On the other hand, you wouldn’t want to have the IRS on your bad side. Money and legal matters are two things that we tend to take care in not messing up, but what if your tax situation is simple? Whether or not you should hire someone to do your taxes is ultimately up to you, but in this article we will discuss the topic in detail. If you’re not sure what moves to make this tax season, keep reading for some examples on when it may or may not be a good idea to hire someone to do your taxes.
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Tax preparers vs. certified public accountants (CPA)
When you hire someone to do your taxes, you usually have two options:
- Tax preparer.
- Certified public accountant (CPA).
Both of these professionals are qualified to help you file your taxes, but they each have different credentials and backgrounds. CPAs are qualified to assist customers with a wide variety of financial tasks, outside the realm of taxes. Tax preparers, on the other hand, may only assist you with completing your tax forms. While tax preparers are not required to have any formal education under their belt, CPAs must have a bachelor’s degree in accounting and pass a certification test.
When choosing which of these professionals to hire to help you with your taxes, it’s important to consider how complex your tax situation is. If your tax situation is pretty straightforward, then a tax preparer should be able to fit the bill. However, if your tax situation is on the more complicated side, you could potentially benefit from having an experienced CPA help you sort things out.
When you should consider doing your own taxes
If the idea of doing your own taxes scares you, you’re not alone. Most of us want to get the most out of our tax return and are understandably afraid of messing up our taxes and getting in trouble with the IRS. However, for most Americans with a straightforward tax situation, doing your own taxes without the help of a professional is an attractive and more cost-effective option. With the help of many popular tax software options, like Turbotax, tax preparation is simple as long as you have all of your documents together, especially if you have basic knowledge of personal finance. It all boils down to which information needs to be inputted where on the tax form.
Now days, many tax software options exist charging a much more competitive price for their services. Sometimes, they’re even free! The average cost of paid versions for itemized deductions is around $60, but there are some that charge as low as $20.
So, here are some common examples of when you might want to save yourself the money on hiring a tax professional:
- You are single, don’t have children and don’t own a business: If you don’t have any dependents or own your own business, then already, your situation is simplified. If you do own your own business, however, you should really consider getting assistance from a tax professional.
- You can crunch numbers, and maybe even enjoy it: If you’re good with numbers and have the patience to sit down and calculate everything, by all means, do your own taxes! You are more familiar with your tax situation than anyone you could hire, so if you have the skills to do it, who better than you?
- Your tax situation is simple or hasn’t changed: If you only have one job, and no other complicated investments or dependents, it’s easy to do your own taxes. You can even access e-filing free of charge on the IRS website if you are a taxpayer with a simple return.
- You don’t own any property or investments: If you have property, or own investments or retirement accounts, things can start to get messy. It’s easy to lose track of everything if you’re not careful as each of these will come with their own set of deductions and credits that can alter your tax return. If you have any of these things, you might want to consult with a professional.
- You have at least a basic understanding of tax laws: If you’ve been staying in the loop with the new tax laws, can understand tax jargon, and are able to painlessly browse through the IRS website to gain information, then the tax process should be easy for you to get through on your own.
When to consider hiring a tax professional
It’s true that many of us can get away with doing our own tax preparation and filing taxes on our own and end up just fine. In some cases, the topic of tax returns is a sensitive one, and many people would prefer to hire a tax preparer just to have peace of mind. Lastly, there are the people who could really benefit from seeking out professional assistance for their taxes. For people who have a complicated tax situation, tax filing can get tricky. If you’re thinking of getting help from a tax professional, look for a reputable CPA or make an appointment with a known tax company, like H&R Block.
Nonetheless, here are a list of examples of situations where you might want to hire a tax professional:
- You are a new business owner: You shouldn’t assume that you know enough about filing your business taxes properly, especially if you are a first-time business owner. It’s not worth messing up and having to deal with the IRS, so it’s highly recommended that you get help from a tax professional. Tax experts are well-versed in tax laws and can help you pinpoint deductions and get the most out of your tax return.
- You have an annual income of $200,000 or more: The more money you make, the more complicated your tax situation becomes. In many cases, you’re also more likely to have multiple jobs or own multiple properties. It’s usually best to seek assistance with your taxes if you fall in within this income bracket.
- You had a recent major life event occur such as the birth of a new child, a marriage, or a divorce: If you’ve recently been married or divorced, you might want some advice on choosing the best tax filing status for your situation. If your spouse died, you’ll want to get help with this as well.
- You own complicated investments: Just like we discussed in the above section, the more ties you have to investments and the more property you own, the more convoluted tax filing becomes. There are a lot of technicalities that most people simply do not have the patience to untangle. The tax preparation for this could take up to 20 hours, so it’s best to consult professional help in these situations.
- You have doubts or things that you are unsure about: When tax season comes around each year, it’s normal to have questions about your taxes. Most people simply don’t know everything there is to know about tax filing or tax laws, and that’s okay. If you find yourself stumped and can’t find the answers to some of your tax questions on your own, it might be best to hire a tax professional to help you. Even if you feel confident about everything else, it’s best not to overlook or ignore the things you have doubts about when it comes to your taxes.
Like most things in life, when it comes down to doing your own taxes or hiring a professional, it’s up to you. Everyone’s situation is different, but as long as you treat the situation with care, it should turn out fine.