It's always a good idea to think about whether you're going to prepare your taxes on your own or hire a professional to do the job for you even if you don't have the tax filing deadline looming over your head. There are a number of considerations that you have to take into account for both options, especially since you can now file your taxes by yourself using special tax preparation software.
While the growing selection of these programs certainly makes it easier to do your own taxes, it has hardly put Certified Public Accountants (CPAs) and other personal tax preparers out of business. We lay out some of the benefits of both. But remember, the decision of which option to choose is up to you.
- You may choose to prepare your own taxes using special tax preparation software or by hiring a tax professional like a CPA.
- Tax software is generally recommended for people with simpler tax situations while a tax professional may be a better option for those with more complicated filings.
- Some tax preparation software may be free and simple to use.
- Hiring a professional can take the guesswork out of calculating your taxes on your own and gives you access to expert advice when you need it.
- You may still file your taxes using paper returns but the IRS strongly recommends filing them electronically to avoid any delays.
Tax Software Vs a CPA: Which Is Right For You?
Tax Filing Basics
The deadline to file your taxes is April 15 each year. Keep in mind that if the date falls on a weekend or a legal holiday, you have until the next business day to submit your tax return and payment if you have any taxes owing.
The Internal Revenue Service (IRS) does offer extensions if you can't meet the deadline. You must put a request to the agency in writing using Form 4868: Application for Automatic Extension of Time To File U.S. Individual Income Tax Return by the deadline. You have six months to submit your tax return if your form is approved.
Now let's take a look at the differences between preparing your taxes on your own using tax software and hiring a professional. The IRS strongly recommends that taxpayers file their annual returns electronically. You may still file paper returns but keep in mind that there may be delays in processing paperwork.
The IRS has provisions for certain members of the military with respect to their taxes. If you were in a combat zone, are part of a contingency operation, or were hospitalized as a result of your service in these areas, you have "180 days after you leave the designated combat zone/contingency operation to file and pay taxes."
Using Tax Software
Tax preparation takes the guesswork out of doing your taxes on your own. There is a range of options available to taxpayers. We've noted some of the key factors that may help you decide which program works best for you.
There is no way around the fact that you will pay less for a software package than to hire a CPA or qualified tax professional. In some cases, you may not have to pay for the service at all. The price of tax preparation software ranges from almost zero for basic filers to several hundred dollars for more in-depth service and complicated returns.
On the other hand, the least expensive tax preparation software generally costs at least $100 while a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes.
There's a very good chance that you can complete your own taxes in less than an hour once you have all the necessary documents in front of you. The best professionals, though, will usually take anywhere from several days to a few weeks to process your paperwork and file your forms.
Good tax preparation software walks you through the process quickly and easily. You probably don't need to sit down with an accountant or tax professional to sort through your paperwork if you only have a few deductions, sources of income, or investments.
Hiring a Professional Accountant
Consider hiring a professional if your taxes are too complicated to complete on your own. You can choose to use the services of a CPA or another tax professional. The fees charged depend on how complex your needs are and the type of professional you choose.
Here are a few things to consider about getting outside help
According to Denver CPA Carl Wehner, accountants pay around $1,000 to $6,000 for their software, which is far more sophisticated than the products sold to consumers. These advanced programs can quickly scan your information and organize line items and forms correctly. By automating much of the data entry and organization, there's less chance for human error to hurt your tax return.
Like a good family doctor who knows your medical history, you can develop a relationship with an accountant so that they understand your family's financial situation and future goals.
"A tax professional is often able to make valuable tax savings suggestions that a software program just can't anticipate," according to Wehner, who has been preparing taxes for more than four decades.
The value of this advice can easily exceed the additional cost of consulting with a professional. For example, a tax accountant can advise you on tax-friendly ways to save for your children's education or how to reduce taxes on your capital gains.
As a trusted professional, a good accountant will be able to answer important questions that arise not just during your annual consultation, but at other times during the year.
Taxpayers who find themselves at the center of complicated business and investment matters may even have the skill to sort through their taxes on their own, but is it worth their time? A professional tax preparer is so familiar with the system, they can quickly and easily accomplish tasks that might take even skilled taxpayers hours of research.
For busy non-tax professionals, their time can generally be better spent earning money in their area of expertise. Even if your tax situation is straightforward, hiring a professional will save you the time and stress of doing your taxes.
What's the Difference Between Tax Software and a Tax Professional?
Tax software is a specially-designed program that helps you calculate, prepare, and file your annual tax return. And there are many options from which to choose. They cover a range of tax situations and you can use them to file both your federal and state tax returns. Tax preparation software is often free for those with simple tax returns but can come at a cost if your situation is a little more complicated.
Tax professionals, on the other hand, are individuals with experience and access to advanced software that can make more detailed calculations. How much you pay for the services of a tax professional depends on your circumstances and the individual's experience.
Is it Worth It to Pay for a Tax Professional?
The answer to this question depends entirely on you and on your personal situation. If you have complicated taxes that require special forms and calculations, it's definitely worth hiring someone to complete for return for you. Having someone else do your return takes the guesswork out of calculations and cuts down on the possibility of error. Fees vary based on the preparer's experience and the programs they use. Keep in mind that you can shop around for someone you find affordable.
Why Would You Hire an Accountant Rather Than Prepare Your Taxes Using Software?
If you have simple taxes with the standard forms to fill out, you're probably better off filing them yourself. You may choose to use a free software program or one that requires payment. Hiring a professional, though, is something you may want to consider if you don't have the time or have some complicated transactions that require more detailed calculations and programs. Professionals are better equipped to do so because they have the experience and pay for advanced software.
The Bottom Line
There is no universally correct answer to the question of hiring a tax professional or doing your taxes yourself with software. Your comfort and familiarity with IRS rules will be part of your decision, but the complexity of your finances should be the key deciding factor. Those with a single employer and few investments may save hundreds of dollars by preparing their own taxes, while those with business income or rental properties will find the expense of hiring an accountant to be worth their peace of mind and potential tax savings.