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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.
This time of year most of us have a dreaded item on our to-do list: taxes. With W-2’s, 1099’s, and other documents rolling in you might be wondering whether you should take the do-it-yourself (DIY) route or if it’s time to enlist some professional help for peace of mind. And, with the news that the 2018 tax bill is leaving some taxpayers with smaller than expected tax refunds, you may be even more tempted to bring in a pro.
The right choice for your tax return will depend on your current situation and can change from year to year. I’m a CPA and filed my own taxes for years. In the last few years I’ve hired a CPA to do them for me. Why? My husband and I are currently living and earning money overseas and that extra complication is beyond the scope of what I want to spend time learning about. When we move home I may choose to do it again, because I (mostly) enjoy it.
So how do you decide whether to DIY or hire a professional? Here are some things to consider:
The DIY Route
If you choose to file taxes yourself, you can either fill out the forms completely on your own or use tax preparation software (like those offered by H&R Block or TurboTax) to make the process easier. But a word of caution: the online programs are only as good as the information you provide. So using them still means you should be very thorough with your responses and track down all of the paperwork you need.
Some reasons you might choose to DIY are:
Your tax situation is reasonably basic
If you get a W-2 from your employer and claim the standard deduction, it’s pretty simple to stick to the DIY route this tax season. If this is your first time filing your own tax return, it might be worth starting your federal and state returns on your own and enlisting the help of a family member or friend before reaching out to a tax expert.
If you did your own taxes last year with little to no worries, and your financial situation hasn’t changed dramatically, DIY might be the route for you. And for tax years 2018-2025, the standard deduction has almost doubled from what it was in 2017.
You like puzzles
There is something satisfying about doing your taxes yourself. For most filers, taxes are one of our biggest expenses and we don’t spend much time thinking about them during the year. Going through the process of learning the different tax deductions you can take, itemizing how much you’ll owe from your gross income, and what effect different strategies have on your financial picture can be interesting. Even if you’re just going through a survey from an online tax prep service, you can still learn a little bit about what affects your final tax bill.
You don’t want to pay for it
Paying for tax pro isn’t always a financial option. Filling out a paper return by hand is free and using an online tax prep service to file your taxes is often much less expensive than hiring a professional. More than 70% of people qualify to use free online tax software through IRS Free File, making the DIY route an even more attractive financial option.
If you’re not able to pay for tax preparation help, but you do need a little extra guidance, there are services out there that can provide support. If you make $55,000 or less, speak limited English, or have a disability and need help filing, the Volunteer Income Tax Assistance program offers free tax filing assistance.
Hiring a Professional
Anyone with an IRS Preparer Tax Identification Number (PTIN) can prepare your return. However, there are three main types of tax professionals that you’ll likely encounter: enrolled agents, CPAs, and attorneys.
Some reasons why you might want to hire one of these professionals include:
You are self-employed or a business owner
When it comes to owning a small business or being self-employed, there are a lot of deductions and tax breaks that you may be eligible for. A professional can help you navigate the tax code, finding and taking advantage of those (legally, of course). This is especially true if you or your business makes any charitable contributions to the community.
Not only can they help you with filing your business tax forms, but they can also help set you up for success in future years. They might suggest bookkeeping software to use, provide financial advice on upcoming purchases, or help you create a business budget.
You have multiple income streams
Filing taxes can get complicated really quickly. If you have multiple taxable income streams to report, like rental property, K-1 partnership income, or some other form of income that makes your situation complicated, you might want to turn to a professional. They can help ensure all the details are reported correctly.
You want to make a long-term tax strategy
Hiring someone to do your taxes can be about a lot more than just filing your state and federal tax returns each year. Some tax professionals will offer tax planning strategies that can help you save money in future years. The list of what they can help you with is long: minimizing tax on stock options, timing charitable donations, and estate planning are just a few popular services. If you have a situation that requires a little extra planning and advice, it’s usually a good idea to bring in professional help.
You just don’t want to do your taxes
Whether it’s because taxes give you anxiety or you just don’t want to set aside the time to file them, that’s a sign you might want to bring in some professional help. It’s easy to make mistakes when you’re rushing through the process and those mistakes can be costly and time-consuming to fix.
When I was in graduate school the tax filing deadline fell right around midterms. My goal was to spend as little time as possible filing my taxes and I sped through filling out my fairly basic 1040. A few months after filing I received a notice from the IRS alerting me that I had missed claiming a tax credit worth hundreds of dollars. Luckily, the IRS caught this and after I filed an amended return I was able to get that cashback. But what if they hadn’t? Rushing through would’ve been an expensive mistake.
April 15th is coming up quickly and whether you decide to DIY or hire a professional, make sure you have your taxes (or an extension) filed by the deadline.