By now you should have received most of your year-end tax documents. More and more Americans, each year are turning to tax software like TurboTax or H&R Block at home to file our taxes. Software like this has made a once tedious task fairly straightforward. Although the United States tax code now stands at 70,000 pages and counting, those of us with simple returns can easily and cost-effectively manage our tax situations with this type of software.
Do I have a Simple Tax Situation?
It’s important to have a general understanding of basic tax laws if you plan on self-filing.
- Do you know your filing status?
- Do you understand the basic deductions and credits someone in your situation should receive?
- Are you comfortable researching an unfamiliar tax topic that may come up?
If you answered yes to all of these questions, you should be just fine doing your own taxes. But before you buy tax software, you can start the federal edition for free on TurboTax.com. The software asks you straightforward questions and automatically fills in your forms accordingly. There is no need to do any calculations or fill in anything by hand. The whole process should not take longer than an hour or two. However, if you have income from a side business or plan on itemizing your deductions, you may want to think about hiring a professional.
Hiring a Pro
Regardless of whether you pay for tax services or not, you are still required to organize and provide a tax professional with all of your pertinent documents(W-2, 1099’s etc.) Accountants will ask you basic questions about your tax situation and the onus is on you to provide accurate information.
Remember there is a difference between a tax preparer(H&R Block) and a tax professional (Accountant, CPA). A tax professional will be there year round to answer any questions you may have. Tax preparers like H&R Block are seasonal and will not provide much help in tax planning or audit support. A tax preparer’s main goal is to get your taxes done as quickly as possible. Their knowledge will not go much beyond that of tax software. I usually do not recommend using this type of tax preparation service.
Ask yourself this.
- Do you own a business or a home?
- Did you have any major life events in the past year?
- Do you have many taxable investments?(Think employee stock plans, gain/loss on stocks)
If you answered yes to any of these questions, it may be time to see an accountant. Self-employed individuals often see the greatest return from hiring an accountant. Any business expenses/deductions you missed can easily offset the cost of hiring an accountant. But beware, in the event of an audit, an accountant is only responsible for the actual calculations made. You are the one responsible for providing accurate baseline data and proving that any borderline deductions are legitimate ones.
For those of us who are do-it-yourselfers, going to a tax professional may seem unnecessary. But an accountant will save you time and can help with tax planning for the long term. Ultimately, each situation is unique and the decision is up to you.
Do you plan on doing your taxes yourself this year? Is it worth it to hire a tax pro?