Tax season is nearly upon us.
If you’re exceptionally responsible, maybe you’ve already filed your taxes and have gotten it out of the way. Most of us haven’t done it, or are just getting started. Either way, we all face the same question at one point or another:
Do I file my taxes myself, or do I pay someone to help me out?
The rise in popularity of software such as TurboTax has done wonders in popularizing self-filing. In 2014, around 30 million people filed taxes from their home computers.
But tax prep professionals still remain popular. From individual accountants to firms like H&R; Block, a lot of people rely on paying someone else to handle their taxes for them.
There are pros and cons to both methods, and what works for you depends on your situation. Here’s what you should consider when you’re trying to decide whether or not you should do your taxes yourself or seek a professional’s help.
Do you actually want to do your taxes?
You definitely have to do your taxes. It’s the law. But the real question is do you want to do your taxes?
For some people, no matter the circumstances, they just don’t want to do their own taxes. They don’t want to put in the time or effort, or they’d rather leave it to a professional rather than rise messing something up.
On the other hand, some people are completely on board with doing their own taxes. They have the know-how or they want to have a better understanding of their money or they’re a control freak who doesn’t trust anyone else to handle the task.
If you fall into one of these camps, you probably already know what you want to do. But if you’re still undecided, there are a few other questions you should ask yourself.
How much are you willing to pay?
You need to think of this questions in two ways: how much are you willing to pay now, and how much are you willing to pay if something goes wrong?
First, consider upfront costs. Tax software will typically run you under $100, even for business use. A lot of software will let you file a federal return for free and then charge you for a state return. In any case, it’s relatively cheap.
Going with a professional, on the other hand, is more expensive. Depending on where you go, a tax professional will charge per-form or per-hour (or, sometimes, a percentage of your total return). Last year, the National Society of Accountants released the average cost of filing returns. For a 1040 form with a Schedule A and a state return, the average cost was $273. Adding a Schedule C – something a lot of freelancers will need – tacks on another $174.
Even going with a franchised tax prep firm will cost you. H&R; Block’s average was $147 per return, and Liberty Tax Service was $191. Cheaper than a dedicated individual, but still not cheap.
Also consider the price down the line if something goes awry. Having a tax professional on your side means that you have someone to turn to if the IRS comes knocking. You also might have some protection with tax prep software; TurboTax, for instance, offers an Audit Defense service for an additional cost. How much extra do you want to pay to reduce the risk of hassle?
How complicated are your taxes?
Taxes, on their face, aren’t really that difficult. Especially with modern tax software, you’re either entering in information you already know – did you get married, did you buy a home, did you have a kid, and so on – or you’re filling out fields that directly correlate to tax forms you’ve received. Plug in numbers and you’re on your way.
But the reality is that taxes are rarely that cut and dry. You likely have multiple forms you need to deal with. You might have investments that require special attention. Small business owners have to know if they're filing as an S Corp or an LLC. If you’re a freelancer, you probably have a lot of business expenses that you can claim to save a lot of money – but you might not even know they’re available to you. A tax professional does, and they probably know other places where you can save money that starts to add up.
If your taxes are as easy as a W-2 and some interest from savings accounts, consider using tax software and enter the information from your tax forms. If your taxes are a little more involved, you might want to turn to a professional rather than digging through everything yourself.
Do you want to deal with another person?
Technology has made our lives a lot easier, in many cases by cutting out the middleman in a process. You don’t have to call a cab anymore and tell someone when you need to be picked up and where; you just open your Uber app and tap a button. Tax software is similar: launch the program, go through the steps, and be done with it.
Having someone else do your taxes can be helpful, but only if you’re willing to deal with everything that comes along with including another person in the process.
If you use a tax professional to file your taxes, you’re on their schedule. This could require back and forth getting forms to them, phone calls, and even scheduling appointments that require you taking time off of work. Plus, you’re surely not their only client. It could take days or weeks before your return is filed – or even before you can get an appointment.
On top of that, you might need to be around to answer any questions they have about your finances – especially if you aren’t organized with the receipts and forms you hand over and need to explain what exactly you’re giving them. That means sitting across from the tax advisor while they do the work. Just because you aren’t doing your taxes doesn’t mean you don’t need to put in the time, and you need to decide if you’re willing and able to make that sort of investment.
Compare that to doing taxes on your own. As long as your taxes are pretty straightforward, you can probably knock them out in a few hours. Sure, you’re putting in more hands-on time, but then they’re out of the way and you don’t have to be concerned that the clock is still ticking toward April 15th.
We’re not in the business of telling you how much your time (or even your money) is worth to you. It depends on what you can afford and what its value is to you.
But you should think beyond just the upfront costs. Will it save you time? Headaches? Do you want a resource that you can turn to throughout the year (especially, as a freelancer, since you need to file taxes quarterly) and handle any filing issues that come up?
If you’re tackling it yourself and you’re unsure of anything, though, look into getting help. Whether it’s having an accountant who you can run questions by, even if you’re not using them to file your taxes, or using the IRS’ resource center, it’s better to get an answer than to guess at anything.
Image: Found Animals Foundation