When it comes to filing your taxes for the upcoming year, you may be tempted to use TurboTax or one of the other tax preparation software programs. It seems more convenient and cheaper to do it yourself.
To answer the question of whether to hire a tax professional or do your taxes yourself with software, there is no universally correct answer. In addition to your comfort level and familiarity with IRS rules, your financial situation should also be a major factor in your decision. If you're employed by one employer and have few investments, you may be able to save hundreds of dollars by doing your taxes yourself. However, if you have business income or rental properties, you might consider hiring an accountant for your peace of mind and tax savings.
Even though Turbotax and other programs are easy to use, they have their own limitations. Spending the extra cash to hire a professional can actually save you money in the long run if your financial situation becomes complex. Below are some tips for when you should leave the software to an experienced professional.
Tax Preparation Costs
Pricing for TurboTax's software packages ranged from $60 to $120 in early 2021, which does not include state tax filing or other add-ons.
An itemized 1040 and a state return cost an average of $323 to be prepared by an accountant in 2020, according to the National Society of Accountants.
|$60 - $120||$323|
Using TurboTax to File Your Taxes
Online tax filing softwares such as TurboTax are a tempting option when looking to file quickly and easily. The draw of lower cost and being able to file on your own time appeals to many. There are pros and cons of using any tax filing software. We will explore the advantages and disadvantages below.
Advantages of TurboTax
Utilizing TurboTax or a similar program has a number of benefits, including:
- You won't have to pay for professional advice since you're using software instead
- Fast turnaround, as you can work on it yourself - even though you may spend a long time on it
- It is easy to use, since you answer the questions and the algorithm handles the rest
Disadvantages of TurboTax
TurboTax also has some disadvantages, such as:
- Problems dealing with complex situations, like small businesses, investments or other tax concerns
- Planning suggestions aren't available, which can be important to people trying to manage their wealth
- Suggestions for deductions that may not be accurate since the software relies on input from you and processes it automatically
- There may be confusion when completing tax returns and completing required documents
- If you are audited, you are responsible for your filing
Using an Accountant to File Your Taxes
For more peace of mind, you might instead want to work with a Certified Public Accountant (CPA). This can be done online or in person.
The benefits of working with an accountant can be greatest when you have more complex concerns or need to learn how to handle changes in your life.
You can use an accountant to go over your documents one by one if you have received an inheritance, started a small business, formed a company, lived overseas, or dealt with other issues that may not be clear in an algorithm. Although accountants are sworn to withhold information on your taxes, you are still responsible for representations on your taxes. In addition, they can communicate with other planning professionals, such as an investment manager or an estate planning attorney.
Consider an accountant in the following situations:
- Renting and owning properties
- Making an estate plan
- Retiring or starting a business partnership
- Starting a small business
- Earning income outside the U.S.
- Dealing with the alternative minimum tax (AMT)
- Managing stock options and restricted shares
Usually, you must schedule an appointment in person. Even though it is slower and more complex than using online software, meeting with an accountant in person can provide you with more tips to help you plan for the future. Additionally, you can learn how to file taxes for a new type of business you didn't have before or about changes in tax law.
You may also want the additional expertise of an accountant if you have had any conflict with the IRS in the past.
Advantages of Using an Accountant
There are several advantages to hiring an accountant to prepare your taxes, including:
- Years of experience provide skills and knowledge
- Insight into handling complicated tax situations or past IRS conflicts
- Insight into planning for your taxes in the future
Disadvantages of Using an Accountant
Choosing an accountant does have some disadvantages, however. Here are some of them:
- Costlier than using online software
- Due to the need to make an appointment, it can take longer to complete your tax return
- Accounting appointments are most commonly in-person
- Human error is possible
Questions to Ask Before Choosing a Tax Preparation Method
As you can see, both options have their pros and cons, so there really isn't a blanket answer because it really depends on the circumstances. Before you make a decision, you should ask yourself the following questions:
- Can I trust that software programs for tax preparation will be accurate 100 percent of the time?
- What is the best way to avoid being audited?
- Do I have enough time to sit down to complete my state and federal tax returns?
- Are my financial records safe to share with a CPA?
- How has the tax code changed since I filed my return last year?
- Do I need to focus more on tax planning so that I can minimize my payments?
- Is there a reliable source I can turn to if I have questions or concerns about the software?
- What type of finances do I have? Do I have multiple income streams, own a business, or have an investment portfolio?
Considering the pros and cons and answering your questions will help you choose the right method for completing your tax return.
When You Should Use TurboTax
If you have the time and patience, you may want to do your taxes yourself. But, taxes aren't something you should do while watching television on the side. It will take some time to prepare your tax return - the IRS estimates that the average person spends up to seven hours gathering forms and preparing their tax return. You can expect to spend 20 hours on taxes if you are a business owner.
If you have a straightforward tax situation, no dependents, and no significant assets or charitable contributions, TurboTax may be a good choice. Tax preparation software was created for people like you who have few deductions and other financial factors to consider.
If you own your own business or are self-employed, and you are familiar with business-related tax forms, then you may opt for using a software. An additional layer of complexity is added to tax returns when business income is included. There are tax software options available regardless of your experience with business-related tax forms or your desire to save money on an accountant.
Helpful Resource: When Your Business Needs An Accountant
There is a lot at stake when it comes to taxes. If you are comfortable navigating the software and searching the IRS website for answers to your questions, and the thought of having to fix any errors doesn't scare you, then you will probably feel more comfortable doing your taxes on your own.
When You Should Use An Accountant
Choosing to work with a professional is better if you lack the time and patience. You might consider outsourcing your taxes if you believe the time you would have to devote to them would be better spent elsewhere. You're likely to make fewer mistakes if you don't rush through your filing.
A tax accountant is necessary if you have dependents, investments, significant assets or charitable contributions, or if you own a business. Tax consequences accompany nearly every financial transaction, and the more transactions you make, the more things you need to keep in mind. A professional might be useful to people who own businesses, freelance, or are self-employed because their atypical tax situations might be flagged by an audit. These situations can include deductions for home offices, meals and travel on business, and vehicles.
If you plan to itemize your deductions, you should hire a professional. As a result of the Tax Cuts and Jobs Act, fewer taxpayers are itemizing deductions. Depending on your circumstances (such as medical expenses, mortgage payments, and charitable donations), you might save more if you itemize your deductions over taking the standard deduction. Itemizing can be tricky to figure out for the first time, especially if it's your first time.
Stick with an accountant if you've had a major life change in the last year. Have you recently gotten married? Did you just buy a house? Do you have a child? Each of these impacts your tax filing, and you might want someone to show you how to document them on your tax return the first time.
Helpful Resource: Key Life Events That Affect Your Taxes
When it comes to your finances, hiring an accountant is a good idea if you don't trust yourself. It might be best to leave tax preparation to a professional if you get nervous about entering numbers and talking about dependents and deductions.
Which tax preparation method should you choose?
An alternative is available to those who want the convenience of TurboTax or other software programs, but also the expertise and knowledge of an accountant. Accountants that can work virtually offer the best of both worlds. By using a virtual accountant, you can organize your documents without getting caught up in the confusion of sorting them out yourself, and you don't have to drive to an accountant's office.
You can get professional support in preparing your tax returns from an online accountant, while still receiving the human touch that can be so valuable when dealing with more complex issues. We'll be able to provide a cost estimate in advance so you'll know exactly how much accounting advice will cost.
To prepare your taxes in a timely and accurate manner, you have several great options. You can choose the right option that fits your needs by weighing the pros and cons of each.
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