It’s Tax Time. Should You Use a Pro or File Yourself?
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There’s a nagging feeling for many of us: Am I leaving money on the table by doing my own taxes? Would I be better off going to a pro?
It’s a tough question. One that often comes down to peace of mind versus cost.
Tax preparers charged an average of $248 to do a standard federal tax return in 2023, according to a study by the National Association of Tax Professionals. Depending on your situation, that could easily be double or triple what you’d spend to file on your own with the help of tax software. (You might even be able to use tax software for free — but more on that later.)
The math may change, however, if you think a tax preparer can increase your bottom line, save you time or help you avoid mistakes. And there’s clearly a draw with both options, since last year, 56% of all electronic federal tax returns were filed by tax preparers, and 44% were submitted by the taxpayers themselves.
So how do you decide? Here are a few considerations to help you choose the option that’s best for you.
How complicated are your finances?
A lot depends on how complicated your filing is. Tax software can do a lot, but not everything. Take TurboTax. It’s one of the most well-known tax filing software programs, but it has an 18-page list of limitations. So you may want a tax preparer’s help if you have:
• Income from lots of different sources
• Complicated investments
• Rental property
• Your own business
• Reason to file state tax returns in multiple states
How worried are you about making mistakes?
You may want a professional if you just don’t feel comfortable enough with your tax literacy. The U.S. tax code — famous for its complexity — has grown by 47% since 1994 and is now over 4 million words long! And 25% of U.S. adults fear they’ll make a mistake on their tax return, including 33% of Generation Z, according to an online survey commissioned by CNET in February.
Now, your tax return can have errors whether you use a tax preparer or software, but software is only as good as the information you give it, of course. And an honest mistake can still lead to IRS interest charges or even penalties in some cases.
A qualified tax preparer, on the other hand, may give you peace of mind that you’re filing correctly. And many tax preparation chains will offer extra protections for an additional fee. This can include representing you before the IRS if there’s an issue. Just keep in mind that you are legally responsible for everything listed on your tax return even if you follow a professional’s advice.
(To learn more about filing your taxes, check out other On the Money coverage. We explain the difference between tax credits and tax deductions, how to decide whether to take the standard deduction or itemize, and what to do if it’s your first tax season, among other things.)
Have you had a significant life change?
Research shows taxpayers often start using a tax preparer when they have a change in circumstances because they know those can affect your taxes. So if you’ve gotten married, had a child, bought or sold a house, or had another big life change, you might want to have someone walk you through how to adapt — at least the first time.
How much time do you have?
There’s no getting around it: It’s a hassle doing your taxes. And whether you use a professional or not, you have to track down documents. But depending on your situation, using a tax preparer can potentially save you time.
(Worth noting: The IRS estimates that taxpayers spend, on average, 13 hours to prepare and file a standard return, according to the National Taxpayers Advocate.)
Do you need other types of tax help?
The tax world doesn’t stop when the clock strikes midnight on April 15. A tax professional can be a resource on retirement planning, long-term care insurance, wills, or investment strategies.
They can also potentially advise you on things like structuring a business and bookkeeping. If you’re using one anyway, you may find that it makes sense to have them prepare your returns.
When is tax software free?
Depending on your income, where you live, and the complexity of your tax situation, you may be able to file with software help at no cost. Here are the two main options:
• Use the IRS’s new Direct File option, which is open to people living in these 25 states. You can’t use it if you have income from gig work, a rental property or a business, though, so check here to make sure you’re eligible first.
• Use IRS Free File, which is available to residents of any state, as long as you didn’t earn more than $84,000 in adjusted gross income last year. Choose from one of the IRS’s eight Free File partners using this comparison tool.
How do you choose a tax preparer?
If you decide to use a professional, make sure they are qualified. The National Taxpayer’s Advocate and the IRS have resources (here and here) to help you choose wisely.
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