Income Tax Time – Do It Yourself or Tax Pro?

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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.

It's time to get those income tax returns rolling. Are you going to hire a tax pro or DIY with online tools and software? Here's how to decide.

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.

Related Posts:
10 Year End Tax Planning Moves to Save Money
33 Most Overlooked Tax Deductions You Need to Know
Strategies to Avoid the Dreaded Tax Audit

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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  1. Emily @ JohnJaneDoe

    I prepare taxes, so I try not to say too much about tax returns. But I will say this…the PF community says a lot about the benefits of side hustles, and a side hustle is a business. I end up spending a lot of time explaining things like mileage versus actual car costs, self-employment taxes, and record-keeping requirements to folks who just started a hustle.

    Moving from one state to another can be another good reason…unless, of course, you’re moving to a state with no income tax. You can end up paying a lot more in my state if you only lived in the state part of the year but don’t file as a partial-year resident.

    And good point about the retirement…you want to make sure you have a good plan for pensions/401(k)/IRA distributions before you start drawing them.

  2. Awesome primer for the upcoming tax season. Fortunately, the tax situation for Mrs Groovy and me is very simple. Just W-2 income and dividends. So we took the plunge last year and decided to do it ourselves. Pretty painless. When we had a couple of rental properties a few years back, though, we wouldn’t think of doing our taxes ourselves. Like you said, own a business and the complication factor increase mightily.

    1. I’m glad, Mr. Groovy, that your taxes are now easier and of course less expensive that way when you do it yourself. We are in a situation where our only income is investment and Social Security (and a few dollars from the blog), so we are enjoying similar ease. My recommendation is as you said though, when there’s complexity in the return, ask for professional advice. Thanks for your comments.

  3. I prepare my taxes now but when I owned a rental property that I was living in. I totally botched up what I was suppose to do. So I had to get it fixed b/c I did not want to get audited by the IRS 🙂 When my roommates moved out and it reverted back to a primary resident I was able to recapture everything and then I have been handling my taxes ever since.

    1. MSM, sometimes you can learn even by the mistakes you make, as long as it doesn’t cost you too much in terms of time and money. I’ve never had a rental property, but I have had complex tax returns that forced me to use a professional. I’m grateful that I’m in a position now where I can do it myself. Thanks for sharing your story.

  4. Jax

    I started using a professional once I received an inheritance. I have a rental property in another state and last year started renting my basement on Airbnb, so having a professional has really saved me a lot of time and some money as well.

    When I was a student I used VITA. They were always so helpful and made the process painless.

  5. Number three under hiring a pro surprises me. I as always under the impression that while a tax preparer may help, you are the one that is ultimately responsible for any and all information on (or not included on) your returns. I had a friend who had a preparer do her husband’s small business returns–incorrectly–for YEARS. The wage garnishment they went through when it was discovered was long and horrific, even though the preparer was listed on their returns every year. Then again, I don’t know what punishment the preparer incurred. Maybe both parties suffer?

    1. FF, let me clarify please. You are correct in assuming that the individual is ultimately responsible for the return. The penalties and/or fines (even imprisonment) if it’s done fraudulently means that the taxpayer is responsible. However, tax preparers who also sign the return can be held responsible in a separate investigation by the IRS. They are also accountable to professional organizations that they belong to and can result in fines, suspensions, or loss of accreditation. Many preparers will pledge their responsibility for any error and offer payment if it’s their mistake. In most cases, the mistakes are caused by the taxpayer’s errors in submission of documents so that the preparer isn’t held accountable. A discussion should be had between the parties before the tax return is submitted to make sure that both parties know their responsibility. One note, if done through an online service, make sure you read the fine print as to what happens if an error is discovered. Thanks so much for your comments.

  6. Daniel Palmer

    So… I do my own taxes. But here comes confession time (this is embarrassing). This year, I forgot to enter state taxes withheld from one of our W-2s, and realized what I had done minutes after I clicked ‘file.’ I couldn’t figure out why I owed so much, and didn’t dig far enough until after the dirty was done. In the end, I suppose it won’t be a big deal, since I’ll file an amended return. But… I still have the hassle of filing that amended return.

    1. Whoops. You do have to be very careful to double-check all your entries because the online services in particular may not pick up a subtle mistake like the one you made. Filing the amended return will take a few extra minutes but it’s not as painful as it may sound. It’s how we remember to do it better the next time, Daniel. Thanks for sharing.

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