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?
-PF Pro
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I’m really a fan of H&R Block’s tax software and have been using it for years. It saves me time in filling out and filing the returns. And today I noticed that Groupon Goods has the H&R Block At-Home Deluxe software for $20. The fine print has shipping at $5 but it’s still a very good deal.
Nice. I’ve been using Turbo Tax software the past couple years and it’s been perfect for a standard simple return(even when I bought a house). But this year, I’m taking a home office deduction for my business and have a disqualifying disposition from a company stock purchase plan, so I’ll be using a CPA.
I would have to take umbrage with your generalization about registered tax preparers. All registered tax preparers are required to have the same understanding of the relevant tax rules as a CPA. The IRS has many strict educational requirements. RTP’s aren’t just software monkeys, at least the good ones aren’t. They have spent years learning and relearning the changing and complex tax code. The only difference between having a CPA prepare your taxes and a RTP prepare your taxes is really the cost. Some people enjoy eating the generic bran flakes just as much as the brand Bran Flakes cereal. In fact most CPA firms who prepare taxes are not going to have a $300 an hour CPA partner prepare your taxes. They will have a junior accountant, or even the secretary prepare your return which is then reviewed by the partner…if he is doing his job right. There are many RTP’s in my profession who provide an exceptional level of service year round and at much discounted rates compared to a CPA firm. And don’t get me started on DIY’ers using tax software…
Hi Jerry,
Are you talking about RTP’s like H&R Block or are there independent RTP’s inbetween the cost of an H&R Block type company and a CPA? My friend just went there and they charged her $300! Couldn’t believe it.
I agree that some CPA’s are definitely a rip-off, like you mentioned, they don’t even enter the info usually. I guess it’s just hard to find the RTP’s with the best value. Any tips for us?
Finding a good independent tax preparer is the same as finding a good local mechanic, doctor, or any other small business. Ask your friends and family. Referrals are the number source of new clients for my tax preparation firm.
When I talk with my clients about costs, I always counsel them about the importance of their income taxes as one of the biggest expenses in their lives. When it comes to an expense that for many Americans can top over $10,000 a year, do you really want to go for the lowest cost provider? Would you look for the cheapest doctor to perform surgery on you or would you look for the highest quality, most experienced, and the most compatible person to work with? Value is important of course, and that is where an independent tax preparer that can provide the same level of expertise in income tax preparation as a CPA but still compete against the lower cost national franchise chains like HR Block, fills a crucial niche. I recently wrote a small blog post comparing tax software vs traditional CPA vs registered tax preparer http://www.astoriatax.com/Software-vs–CPA-vs–Tax-Preparer.php
The tax preparer you find in your 20’s or 30’s, when life gets a little more complicated than tax software can handle, is the one you stick with for decades to come. Make sure you find one who is interested in having a long term relationship with you instead of just looking to get you in and out the door as the post correctly pointed out about the national tax prep chains. It is hard to find that right relationship, but it is well worth it when you do find the right person to help you through one of the most important aspects of your financial life.
I guess I’m still looking for that right combination of value and quality from my tax preparer 🙂 Thanks for the informative comments!