Should You Self-Prepare or Hire a Tax Professional?

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Thanks to the internet and the evolving technology that comes with it, we are living in a do it yourself world that becomes more self-service as times passes. There are a lot of tasks that are now automated that no longer require the use of a dedicated professional but can we do everything ourselves?

Just because it’s possible to forgo the fees that come with hiring a professional, are we actually saving money? Most people would argue that we still need human doctors although a wealth of medical information can be found online but since it’s tax season, how about tax professionals? Have software packages like TurboTax removed the need for CPAs and other tax professionals?

The Software

If you’ve never used tax preparation software, it’s not only easy to use, but it’s also inexpensive. Thanks to cloud computing, filers can now prepare their own taxes for far less than the cost of a CPA or other professional. Not only does the software painlessly walk us through the process, it learns about our finances and asks appropriate questions as it collects more information.

If the return is as simple as completing the 1040EZ form, it will cost nothing to complete and file the form. For more complicated returns, costs range from $30 up to $90 in most cases.

If you’ve ever used software like this, you know that there are usually a few questions that you can’t answer and as a result, you guess, estimate, or just don’t answer at all. What seemed like an innocent guess may become problematic later on should you be audited. The software is good but does it really beat the professional?

The Tax Professional

Some of us still prefer human contact. We want to form a relationship with a professional that has a deeper understanding of our situation. We want to be able to call on them throughout the year to answer questions and we want the confidence of knowing that somebody with years of experience preparing tax returns will find the errors that our $50 software package didn’t catch.

The tax professional will charge more but often, their software is more sophisticated. We paid $50 but professional tax preparation software is $1,000 to $6,000, according to some sources. If your tax situation is complicated, even the best retail software may not be enough. If you are a sophisticated investor or a business owner, it is still best to use a CPA to avoid costly errors and penalties.

The Verdict

It would be nice to say that there is a hard and fast answer but sadly, there isn’t. If your tax situation doesn’t include a lot of credits, investments, or other complicated deductions like the home office deduction, purchasing a retail tax package may be enough for you to finish your return.

Remember that value isn’t always found in price. If you have a complicated tax situation, paying the extra money to hire a professional may result in less of a tax burden than if you did it yourself. The extra money you paid the professional could be paid back to you many times over because they knew how to apply other deductions that your tax software did not.

{ 6 comments, please add your thoughts now! }

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6 Responses to “Should You Self-Prepare or Hire a Tax Professional?”

  1. We always hire a professional. They know the ins and the outs of tax law and are able to take advantage of that knowledge. If we tried to do it ourselves we’d be missing a ton of things I’m sure.

  2. Frugal says:

    Self preparer with the tax software

  3. James says:

    Self preparer with no software, filing 1040 with Schedules A, B, D, and Form 8949. Not hard, pretty straightforward, and just a bit tedious.

  4. elloo says:

    If your taxes are not too complicated and/or you take the standard deduction, use TurboTax. I tried the software last year and compared my results with those of a paid preparer. I did much better with an accountant even after paying him a lot of money to prepare my taxes. I think what made the difference was the depreciation of my home since I use part of it for work.

  5. Omega says:

    @ elloo

    “I think what made the difference was the depreciation of my home since I use part of it for work.”

    So if your house is worth $250,000, let’s say the structure is worth 200,000 for our depreciable basis( you cannot depreciate land). if you are using one bedroom for your office this is probably about 7% of your home, so $14,000 to depreciate.
    3.6% (27 1/2 year For residential property) times $14,000 equals a $504 deduction. If you are in a 25% bracket and 15.3% for self appointment equals 40% times $504 or $201 tax savings for taking this deduction. So really, it couldn’t have made this much of a difference. And I’m sure your accountant was aware.

  6. skylog says:

    self preparer. i think for “most” people, this is the best option. that said, many people are uncomfortable doing them.

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