When it comes to tax prep, there is no shortage of options for people to meet that annual tax filing deadline. There’s always the option to prepare your own taxes, and indeed about one-third of Americans choose this route. The rest, for various reasons, turn to professionals for help. Should you dive into the DIY world or get expert help? The answer depends on your circumstances, time and budget, to name just a few factors. Here are three questions to help you decide.
1. How complex is your financial situation?
Doing your taxes is simplest when you don’t have complex forms to fill out. For example, if you take the standard deduction and your income sources are straightforward, you may be able to do your taxes on your own. Low-cost software can also guide you through how to do your own taxes.
Be aware that software can walk you through filing a return, but it can’t give advice. As the complexity of your financial situation increases, including questions about income, capital gains and more, you may want to reduce uncertainty (and the time you need) by enlisting a professional’s help, especially so you don’t miss out on possible deductions.
An experienced tax preparer can help answer those types of questions and help you claim everything you're due. That’s important. One study found that 2.2 million taxpayers who took the standard deduction overpaid their taxes by nearly $1 billion.
2. How much time do you have?
Filing your own taxes will save you money, but you may also want to consider what your time is worth. The average taxpayer spends three hours completing a Form 1040, while business owners spend an average of five hours. This doesn’t include record keeping or state filings.
Whether you DIY or hire out your taxes, you can minimize your stress by preparing early and planning ahead (click here for a few helpful tips).
3. How much are you willing to spend?
There are costs to doing your taxes yourself — your time, any software you may use, and mistakes you may make that could end up resulting in fees and fines. DIY software or online programs typically cost $40 to $170, plus a bit more for state filing, depending on the type of return. (If your adjusted gross income is less than $66,000, you can use the IRS’ Free File to prepare and file your taxes at no cost.)
Paying a tax professional relieves you of the burden of investing time, but it still has a cost. A National Society of Accountants survey in 2017 found the average fee to complete a Form 1040 with itemized deductions and a state tax return is $273. Adding an estate, rental, business or other form can add another $135 to more than $1,000.
How to choose a tax preparer
Start by asking whether a potential tax preparer is an enrolled agent, CPA or tax attorney, not just a tax preparer. A tax preparer must meet state and federal guidelines but isn’t required to have formal education. Whereas an enrolled agent, CPA or tax attorney must pass rigorous exams and receive continuing education, which generally gives them far greater knowledge about tax laws. You can also get references from friends and family for trusted professionals they have used.
Ask anyone you hire how they will protect your data, especially if they file an electronic return. Also, investigate if they can and would represent you before the IRS in the case of an audit. Remember: Even if they sign off on your return and help with an audit, generally liability ultimately falls on the taxpayer, not the professional.