It's the season that only accountants love: tax filing time. The big question though is: Should you tackle the tax beast yourself, or hire a professional to get the job done? Like most important questions, the answer isn't so simple, and there are lots of factors to consider when figuring out your answer.
We'll help you decide whether to hire a tax professional or do your own taxes, and offer up useful tips for whichever option you choose.
DIY or Hire a Professional: 4 Questions to Answer
Is your tax return simple or complex?
"The benefits of using a tax professional are very little if you have a straightforward return without a lot of deductions or complexities," says Randall Brody, enrolled agent and owner of Tax Samaritan. Brody explains that your return will be relatively straightforward "if you don't have investments, don't live overseas or have overseas bank accounts [or] rental properties, [don't] own a business, or other more complex situations."
Do you have the personality (or time) to do your own taxes?
Be real, if you can't find time to clean the house or grocery shop, you likely don't have time to DIY. Are you impatient or easily stressed out? Even a simple tax return can be a bit confusing if you don't know what you're doing, and a more complicated one might take a lot of time and concentration. "If you don't have the patience to deal with all the intricacies of your finances, hand the reins to someone who does this for a living," says Joshua Zimmelman, president of Westwood Tax & Consulting.
If you're not one for organization, think twice. You know you need to keep track of all your receipts and statements, regardless, but when you're running the show, you must understand what it all means. "Every transaction matters and if your financials are kind of a mess, then you're better off paying someone else to sort it out for you," Zimmelman says.
How well do you understand tax laws?
The IRS is always tweaking its laws regarding taxes, deductions, credits, and the like. While some changes won't give you a headache, others can be dizzying and best left to a pro.
Have you experienced a big life change this year?
Be cognizant of your life changes. Maybe in the past you've done your own returns, but this year are things different? Did you change careers, start a new business, expand your company, get married or divorced, become widowed, have a child, or buy, sell, or rent property? These are game changers for your filing status or allowed deductions. "If you don't know what all these changes mean for your tax return, there's no reason to risk doing it wrong," Zimmelman says.
Here's the bottom line, according to Dean Ferraro, an enrolled agent for Authoritax, a tax resolution firm. "Ask yourself, do I have the time and expertise to get this right? If I make a mistake, can I afford to fight the biggest, baddest, meanest collections force on the planet? A tax problem can derail your life."
If You Decide to Do Your Own Taxes…
If you go it alone, see if you qualify for the IRS Free File program. "More than 70% of all taxpayers qualify and can choose from brand name tax preparation software at no cost to them," says John Breyault, vice president of public policy, telecommunications, and fraud at the National Consumers League. "You can get information at IRS.gov/freefile."
Another option is online software like TurboTax. "It's user-friendly, a good choice when you can't afford to hire a tax professional," Brody says. But he cautions, "whether your return is simple or complex, a false assumption is that the online tax software will automatically prepare a correct return. This is generally only true if the user has a clear understanding of their tax documents, tax situation, and of the question being asked on the screen.
"It is DIY tax preparation, but it still relies on you to be the human expert to make the correct input," he adds. "Most people lack understanding of both tax documents and questions being asked — the old adage holds true: garbage in, garbage out."
If You Decide to Hire a Tax Professional...
Where to Get Tax Help
On the other hand, if you decide you can't afford to blow it and want to get some help, there are options, too. "If you make $54,000 or less, you can get IRS-certified help for free. Nearly half of Americans qualify for VITA (Volunteer Income Tax Assistance) services," Breyault says. Go to IRS.gov/vita to learn more and find a program near you.
You see franchise tax preparers advertised on TV and elsewhere, but should you check them out? "Be mindful of the fees and other hidden charges that can eat into your refund," Breyault says. "For those who qualify, skipping the high-cost tax preparation outfits and instead relying on IRS-certified volunteers available through VITA programs means keeping 100% of your federal refund."
Also, ask those from your circle for references. You'll want to interview at least three people.
3 Questions to Ask a Potential Tax Preparer
Be as thoughtful when choosing a tax preparer as you would a doctor, attorney, or other professional. You can check with the Better Business Bureau or your state board of accountancy, among other places, to research a tax service or preparer.
Here are just three of the several questions to which you should get satisfactory answers.
What are your qualifications?
What's the right response? "I am an enrolled agent, have demonstrated my expertise in income tax preparation, undergone an IRS background check, and can practice in any state. I am a CPA, licensed by the state board of accountancy who specializes in tax preparation; or [I am an] attorney admitted before the state bar and I specialize in tax preparation. Only those three types of professionals can represent you before the IRS in the event of an audit," says Steven Weil, Ph.D., an enrolled agent and the president of RMS Accounting.
What are your fees?
What's the right response? Some accountants charge by the hour, or offer a flat rate based on how simple your tax return should be. Fees vary. "Know what you're getting into and ask if there is anything you can do to keep costs down," Zimmelman says. "The more organized you are, the easier it will be for your accountant to sort out all your transactions and receipts and save you money in the end."
Avoid tax preparers that ask to be paid a percentage of your refund or don't sign on your return. "Both are tax fraud and should be avoided at all costs," Brody warns.
What's your experience?
What's the right response? You don't want a newbie and if you have specific issues, you want to know that the person has extensive experience in that area and knows the rules and regulations.
Readers, are you doing your own taxes this year or hiring a professional to prepare them for you? How did you decide? Let us know in the comments below!