Which is best, between doing your own taxes versus hiring someone? It’s no secret that it can be hard to do your taxes. In addition to making sense of the federal tax code, there are so many new changes taking effect that you need to know. These make figuring out what you owe more difficult.
There are numerous advantages of doing your own taxes, including the fact that it will save you money on tax preparation fees. However, incorrectly calculating the estimated taxes may be costlier, which may lead to hefty penalties. It also takes time and needs a lot of patience.
Hiring a professional, on the other hand, may cost you some serious cash. Still, it could be worth it if it helps lower your tax bill or significantly increase your refund. It also makes sense to hire a pro if you have multiple income sources or significant assets.
The complexity of your tax situation, comfort level, efforts you are willing to put forward, and cost will influence your choice. However, before deciding to do your own taxes versus hiring someone, it makes sense first to understand the pros and cons.
When is it ideal to do your own taxes vs hire a professional?
There are two basic ways to file taxes: do it yourself with tax software or through the IRS website or hire a qualified tax professional to do it for you.
It makes sense to do your own taxes if:
- You have the time and patience to deal with it
- When you have experienced no changes in your previous tax situation
- Have a straightforward tax situation with no dependents, investments, or other retirement accounts and no charitable contributions of significant assets.
- If you have limited income sources such as W-2 income and plan to take the standard deduction
- When you own a business or are self-employed and feel comfortable handling business-related tax forms
- You are comfortable filing your own taxes and want control over your money
Consider hiring a professional if:
- You have a complicated tax situation with multiple dependents, significant assets, or own a business
- When you have sold your business and are en route to retirement
- You plan on itemizing your deductions, especially if you have high costs such as mortgages or medical expenses and want to save more money by itemizing your deductions
- You’ve had a significant life change, such as getting married or having a baby
- You don’t trust yourself to cover all the bases
Pros of doing your taxes
- It saves you money: The most significant benefit of doing your own taxes is that it will save you money. Tax preparation fees will vary depending on factors such as the complexity of your financial situation.
Do you have more than one source of income? Do you have more than one dependent? Do you have investments that earn you interest and dividends? The more you have, the more you will have to pay for professional help. However, you can expect to pay around $150 or more for a simple return.
Since anyone can file taxes electronically and for free via the IRS website, it makes sense to do your own taxes if you can. Other options include online software programs such as TurboTax, which will complete your return for free (be aware: only simple tax returns are free. Additional features will add a cost as well).
However, it’s important to note that using a professional can sometimes help you lower your tax bill. They have the expertise to take advantage of every available tax deduction and credit to reduce the final amount of tax you pay. If the final savings cover their costs, then it will be better for you to hire one.
- It gives you peace of mind: If you have a tough time trusting your information with an accountant going at it alone will make more sense. By filing your taxes, you don’t have to worry about sharing your personal information with a stranger. Therefore, if privacy is a concern or you cannot find a tax professional you trust, preparing your own return may be the safest option.
- It improves your financial literacy: Preparing taxes forces you to look closely at your finances. And the effects some of your decisions, such as savings options, have on your return. It will push you to learn more, providing more insight into how you’re growing your wealth. It also provides an excellent time for you to re-evaluate your goals and how to achieve them better.
Cons of doing your own taxes
- Itis time consuming: Even if you have a simple return, doing it will take time because you need to organize, prepare then submit the returns. It’s more time-consuming if you have trouble understanding the different tax rules. Using online tax software can speed up the process. However, it can be challenging to get help if you experience any difficulties, which increases the chances of errors.
- You can make costly mistakes: The US tax code is very complicated. Professionals invest significant time and other resources in education and continued education. Filing an inaccurate return could result in a hefty tax bill.
Pros of hiring a professional to do your taxes
- It saves time: No matter how simple your tax situation is, it will still take time to complete your taxes accurately. It will save you much time to divert to more productive work.
- Gives you access to top-level advice: Professionals thoroughly understand advanced tax laws. This understanding makes it for them to determine your tax liability accurately. They can also help you navigate through the tax codes in a way that will considerably reduce your tax liability. So if your financial situation includes anything out of the ordinary, it is advisable always to seek professional help.
- Fewer mistakes: Does the mere idea of IRS agents knocking on your door give you anxiety? If yes, then consider hiring someone. Since filing returns involves tax laws, you can unknowingly make mistakes if you’re unfamiliar with the law. A professional is less likely to mess up your taxes.
Cons of hiring a professional to do your taxes
- It’s costly: The more reputable and experienced the firm, the more you will pay. The challenge with lower-end
- Rampant fraud: When you work with an expert that offers a service for less than the going rate, there’s a greater risk of identity theft or errors in your tax return.
- Tax preparers make mistakes too: You can’t assume your tax preparer will do everything correctly. They can also make mistakes if they don’t have the correct information.
Conclusion
The evolution of online tax software programs, some of which are free, simplifies the process of doing your own taxes. If you decide to go your own way, ensure you take advantage of the available resources for due diligence. If you hire someone, research to ensure that whomever you settle on will give you value for money.
Ultimately, deciding to do your taxes or hire a professional will depend on your unique financial situation. And whether or not you are comfortable doing it yourself. Weight the highlighted pros and cons and choose the best choice for you.
