Tax Software vs. an Accountant: Which Is Right for You?

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.

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.

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.

Price

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.

Speed

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.

Simplicity

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

Better Software

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.

Human Touch

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.

Expert Help

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.

Time Savers

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.

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.