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It’s now income tax season and (hopefully) you are gathering all of your tax information and planning to file your return over the next couple months, certainly by the April 18th, 2017 deadline. Yes, you have a couple of extra days this year because the 15th is a Saturday and the 17th is a Washington, DC holiday this year.
But once you’ve gathered your information, how are you planning to prepare your returns? Are you planning to do it yourself, or will you hire a tax professional to help?
Filing Your Income Tax Returns
Last year, over one third of returns Americans filed were done online or with tax software and that number will increase this year. There’s been a lot of growth in the category over the past 10 years. The average cost to have a professional tax accountant or CPA do your personal tax returns was $273 for 2014 (the most recent year available), so if you are like me, doing it yourself is very appealing and a great frugal way to get the job done.
Why Use a Tax Pro?
There are some reasons, however, that make using a tax pro to prepare your returns a smart move. Not everyone’s life is a constant and there are many life changes that can complicate your tax return and confuse you when it comes to proper forms and tax deductions to declare. Any time you miss an opportunity to lessen your tax burden, only you suffer as the IRS isn’t going to alert you if you are overpaying your taxes or missing an opportunity to lower them through proper execution or future planning.
Reasons to Consult a Pro for Tax Help
1. You opened a new business this year
When you have any kind of income that isn’t simply from a “job” your income tax return immediately becomes more complicated. There are special forms to use and special calculations that may involve all kinds of legitimate deductions as well as special planning now for future returns. A tax pro will be up to date on all pertinent laws and changes from year to year that you may not have any knowledge about for preparation.
2. You had major changes from one year to the next
You don’t want to assume you know all the details and nuances of each life change and despite the online filing system’s help, you may easily overlook some ways to save.
3. A tax professional will represent you if you are audited by the IRS
It can be a real help if you are ever audited to have a pro by your side. There is a great incentive for a tax professional to do his best for you. Most importantly, he is responsible for what is on your documents and can suffer fines, penalties, and a suspension, or even in severe cases of neglect and error, being barred from this line of work!
4. You are wealthy
If you have an income of over $250,000 a year and/or complex investments, you should get tax help. Many deductions and tax advantages are phased out at high incomes and an advisor can help you plan, defer and/or report your current and future income so that you don’t lose any opportunities to maximize your advantages and minimize your costs.
5. You are nearing retirement
Before you actually retire, having a tax pro review your current and potential new tax rates is a really good idea. Looking at where your money is at, how you plan to draw any of it, your Required Minimum Distributions and when they will affect you, are all significant things you need to know and understand before you stop working. You may also want to review what happens if you work and earn an income even after your “retirement” and review how that will affect you.
6. You pay your taxes in more than one state, or even to a foreign country
This one seems pretty obvious. Having someone’s help with these kinds of issues will be a huge headache saver. The online and internet tax preparation just doesn’t have a lot of detailed expertise about these taxes. They are complex and also can trigger audits more frequently than other types of returns.
Why Do It Yourself?
For the past several years I have been filing my federal and state tax returns online using TaxAct. It has become so convenient and costs little or nothing depending on your return. I have found it to be a real positive experience for me and for others I know.
Reasons to Do It Yourself
If you don’t have an unusual or complicated tax situation, there’s plenty of reasons to go the DIY route.
1. It’s frugal
Filing yourself costs a fraction of using a tax pro, or in some cases for basic returns, costs nothing at all.
2. It’s easy
Tax software, whether it’s online or standalone, makes the process simple. By asking you questions in a wizard-type interface, your tax returns are completed.
3. You’ll have a better understanding of your taxes
When you do your tax returns yourself, you’ll increase your knowledge of your taxes and deductions which can put you in a good place for the future.
4. You’ll still have access to help
TaxAct offers free tax and technical support via phone and e-mail. You don’t have to do it totally on your own.
While I will still be using an online tax service this year, it isn’t always about saving on the fees. If your tax situation is unusual or even changing this year for the first time in a few years, consider an “old school” tax preparation service or even a well know local company or CPA for their help.
What are you doing with your tax preparation this year? Are you planning to DIY or is this the year you go back to the pro and get an education in tax prep?
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