We’re almost halfway through tax season, so if you haven’t filled out your tax forms yet, it’s time to get going! If you’ve got money coming back to you, you surely don’t want to wait longer to get it, and if you’re going to owe money, well… you’ll want to know sooner so you can start planning for that. Could it be that you’re unsure whether to do your taxes yourself or take them to a professional? In that case, we’ve summarized the pros and cons of both scenarios for you here.
What to Know About Doing Taxes Yourself
If you choose to tackle your tax return on your own, you’ll be in good company. According to a CBS report, nearly half of all Americans who file taxes do it themselves. Many of today’s tax preparation software options are very thorough at a reasonable price. And, if your adjusted gross income (AGI) is below $72,000, you can file electronically for free, using the IRS Free File Software Lookup Tool.
Doing your own taxes tends to make the most sense for those with a fairly straightforward financial situation. Don’t have any dependents, don’t own a business or major assets, and don’t make significant charitable contributions? You sound like the model customer for whom free tax preparation software was made. Still, do consider the pros and cons before making your final decision.
This one is obvious. But if you want the hard facts on how much cold hard cash you can save by filing yourself, here’s a stat for you: In 2017, the average cost for professional preparation of both state and federal taxes (1040 with itemized deductions) was around $261. The cost for professional preparation of a simple 1040 without itemized deductions averaged at about $152. That’s according to a National Society of Accountants’ survey, published by the IRS.
Learn valuable information.
As you carefully pore over a year’s worth of your financial records to prepare your return, you may gain a clearer understanding of how you’re actually doing, money-wise. You’ll also be learning about tax credits, effective rates, and deductions — all things any financially savvy adult should be familiar with, whether they hire out their tax return or not.
It can be a big time commitment.
Tax preparation software does make it easier, but filing your taxes is still an activity that’s best done without any distraction. Between gathering the necessary documents, filling out the forms, and doing some tax planning, the average non-business filer spends about eight hours preparing their return. That being said, the simpler your finances, the faster you’ll likely be able to finish the job (for a 1040EZ the average time drops to five hours). Bottom line: If you don’t have the time or patience to do your taxes carefully and thoroughly, then hire a pro.
You could miss out on credits that you’re not familiar with.
Tax laws change, and tax filers go through big life events (hello new house, spouse, and/or baby). It can be all too easy to overlook potential credits and deductions when you’re not a full-time professional dedicated to keeping up with these kind of things. A professional tax advisor is educated to help you get the most possible benefit out of your tax return.
To potentially help keep your costs down, have all your documents organized and ready to go when you meet with your tax preparer. Some may charge by the hour, and if they have to repeatedly chase you down for missing information, that could rack up your final bill.
What to Know About Hiring a Tax Professional
If you’d rather turn your tax return over to the pros, you should first understand the various credentials a tax preparer can possess. There are three classifications of professionals who are authorized to prepare your taxes for you: CPAs, tax lawyers, and enrolled IRS agents. Learn more about these classifications from this IRS resource or find a credentialed preparer at taxpreparerregistry.com.
Professional tax advice is often ideal if you have significant investments and/or assets, own a business, recently experienced a major life event such as marriage or the birth of a child, or if your household income is greater than $200,000 annually. Why that number? According to Kiplinger, your odds of an IRS audit may increase once your household income surpasses $200,000. And while a tax professional is not a guarantee against an audit, you’ll want your return to be as precise as possible if indeed the IRS does pay a visit. Consider the following factors before you call a tax professional.
Expert advice on complicated tax situations.
Even for those who are generally pretty savvy about money, tax law can be some complicated stuff. Professional tax advisors are the experts, and many participate in continuing education programs to stay on top of the latest changes. An experienced tax pro can help you find credits and deductions you may not have known about, and help you avoid mistakes that could lead to headaches later.
Saves you time and stress.
Filing taxes can be time-consuming, and we’re all busy. At some point, you may decide the money spent of professional tax preparation is worth the time saved. And for some, it’s nerve-wracking to hit that “submit return” button all alone and unsupervised. That’s okay — even though it’s doable to do your own taxes, the IRS doesn’t conjure up warm, fuzzy feelings for most people. If you’d feel more comfortable getting professional help, then that’s what you should do.
It can be somewhat expensive.
As mentioned previously, the average cost of having your state and federal taxes professionally prepared is about about $152 for a simple 1040 and around $261 for a 1040 with itemized deductions. That number climbs higher as your tax returns get longer and more complex. But complex tax filings are exactly the kind where professional help is often most beneficial, so it may be worth it to pay up. The good news is that in some cases, you may be able to itemize tax preparation costs as a deduction!
It doesn’t absolve you of all effort.
Even though you’re paying a pretty penny to have your taxes taken care of for you, it’s still on you to review your completed return before your tax preparer files it on your behalf. And, you should always confirm that the IRS and your state government have indeed received the filing. Still, that’s a lot less work than the up to 16 hours it takes, on average, to complete a 1040 with itemized deductions.
It’s your call:
What you decide ultimately depends on your specific situation, and in fact, it’s a decision worth revisiting every year, since that situation can and will change. Whichever route you go, just be sure you’re ready come Tax Day (or sooner). And, check out this post here for some ideas on how to best use a tax refund!
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