Tax Returns – DIY or Hire Help?
Should you do you taxes yourself or hire help? Tune in here to learn more.
(Video is 4 minutes. The full transcript is below.)
Full Transcript of video
Hey friends, the Fearless Advisor here. Today I am going to discuss whether you should do your taxes yourself or hire help.
Filing tax returns is a necessary task for Americans. The months of February through mid-April every year are filled with the tasks that come with filing taxes. Gathering all the tax forms and donation receipts is all part of the fun if you want to call it that.
During this time of year many people are debating whether to complete their own tax returns or hire a tax preparer to do this for them. Fear of not completing the filing correctly and receiving a dreaded letter from the IRS drives many to hire a human preparer.
How do you know if you should complete your return yourself or hire a tax preparer?
For clarity, when I refer to completing your return yourself, I am referring to using a tax preparation software, such as Turbo Tax, H & R Block, or Tax Slayer. I encourage all filers to electronically file your returns for expedited processing over paper returns and having electronic receipt confirmation.
There is one main factor when determining whether to complete your return yourself and it is the complexity of your income. If you have a pair of W-2s and income from a taxable investment account, your level of complexity is low. Once you have all your documents, you could likely complete your return in less than two hours. The time could be more or less depending on the income tax requirements for your city and state.
The DIY tax software available today is very helpful for low complexity returns and is less expensive than hiring a preparer. Plus, they will file your return electronically and keep historical copies of your returns. Having historical copies is helpful for redundancy and if your situation becomes more complex in the future and you decide to hire a tax preparer.
A few of the DIY tax programs have add-on services where you can pay extra to speak with a tax professional. This service can be very helpful. However, if your situation is complex with 1031 exchanges, rental income, and other complex issues, these tax professionals may not be able to offer the expertise you need.
If you know you are in the camp with more complexity in your income, then you may want to consider hiring a tax preparer. Higher complexity drives more questions and tax forms that need to be completed for filing your return. Additionally, more complexity can open the door to employ more sophisticated tax strategies that are difficult to program within software.
When searching for a tax preparer, it’s important to know the preparer is responsible for entering the information correctly on the return. But you are responsible for providing accurate information. Therefore, referrals are a good place to start looking for a preparer.
You will also want to consider the credentials of a preparer prior to making a decision. Certified Public Accountants (CPAs), enrolled agents, and lawyers, have had to pass competency tests, maintain continuing education requirements, and uphold standards of conduct. Of course, credentials do not guarantee anything, but it does show the individual takes their responsibility seriously.
As you can imagine, hiring a preparer will carry a higher expense. However, this should be a decision about value and not just cost. Ask yourself what your time is worth and how much a mistake could cost? For you business owners, you may also want to hire professional who can help you with tax planning throughout the year.
The final thing to consider is timing. If it’s April 1st and you are still deciding on whether to hire a tax preparer, you have waited to long. Decide and move. The right time to select a tax preparer is between May and August. These are the months between the major tax seasons and a preparer will likely have to discuss your tax preparation needs in more detail. In other words, you can interview one another.
Tax preparation is a necessary evil, but it does not have to be a headache. There are great software solutions available for families with lower complexity and highly competent tax professionals for those with higher complex situations. More custom services that require a higher degree of knowledge will cost more but should provide more value than they cost. Plan ahead for tax season and your experience may be much better than expected.
If you are interested in learning more about taxes, tax planning with a financial advisor, and finding a tax preparer, please reach out to us here at F5 Financial Planning. Thanks for joining us!
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