Pay Someone to Prepare Your Tax Return or DIY – What’s the Right Way?
The average family thinks it’s best to prepare their own tax return. They figure they have simple enough income and straightforward deductions, so why pay someone, right?
It’s common thinking, but it’s often mistaken. The benefits of using a professional tax preparer often far outweigh the costs. If you’re like most people, you assume it costs an arm and a leg to have a professional tax preparer and it’s only for the ‘rich and famous.’
What if, though a professional could help you save more money and invest in your future? We often think about taxes as a one-time thing that only affects us on April 15. The reality is, your tax returns affect you year-round and even control your future finances.
Whether you’re a corporate professional or you work out in the field, there’s a reason why professional tax preparation is best.
DIY Taxes – The Pros and Cons
Preparing your own IRS tax returns has its good and bad sides. Understanding the pros and cons can help you decide what’s right for you.
Benefits of Preparing your own Taxes
You may learn something. I’m not kidding when I say the tax code is complicated and always changing. With any new administration, things change even more often. The rules last year may not be the same as this year and vice versa.
Understanding the tax code is a great way to stay on top of your finances. You’ll know how certain financial decisions affect your tax liabilities and future financial situation.
You’re in control. Some people just like to be in control. If you took personal finance courses in school or you’ve done your research and know a bit about taxes, you may want that level of control. You know when your tax return will be completed and how much you owe.
You may save money. This isn’t a given, but many people assume it’s the case. You won’t have to pay anyone to prepare your taxes, so you do save on that expense. But, if you end up costing yourself money by making ineffective tax decisions throughout the year, this benefit may not be as large as you thought.
Downsides of Preparing your own Taxes
There is a large risk of error. No matter how well you think you understand tax preparation, there’s no comparison to a professional’s knowledge. If you make even one mistake, it could cost you thousands of dollars or worse yet, an audit.
It’s time-consuming. Preparing your own taxes isn’t something you can do in a few minutes. Not only must you gather all your paperwork, but you must complete all the necessary forms. If you invest, own a business, or have multiple real estate properties, you have more than the 1040 to complete.
You might miss deductions. This is the largest downside. One missed deduction can cost you thousands of dollars. You may also miss opportunities to reduce your liabilities by investing in tax-deferred accounts including retirement, college savings, or healthcare spending accounts.
Professional Tax Preparation – Pros and Cons
Before you assume professional tax preparation is too expensive or isn’t worth it, learn the pros and cons.
Benefits of Professional Tax Preparation
You may save money. It’s hard to think paying someone to prepare your tax return would save you money, but it comes down to knowing how to file your taxes. A professional understands what deductions you qualify for and how to help you manage your investments or funds so you get the most tax benefits.
You’ll save time. Figuring out how to file your taxes can be complicated and overwhelming. If you aren’t an expert, you could spend a lot of time researching, asking questions, and even redoing your taxes if you make a mistake.
You’ll lower your risk of mistakes or an audit. A professional tax preparer knows the tax laws and how to file your taxes. You’ll reduce the risk of any errors or lower the risk of an audit. Most tax preparers stand behind their tax preparation and will back you up if you did face an audit.
Downsides of Professional Tax Preparation
It costs money. We have to put it out there, of course, it costs money to have a professional handle your IRS tax returns. Every tax preparer charges different fees, though. Don’t assume it’s a one-size-fits-all approach and that all tax preparers are too expensive.
You’re at the mercy of someone else’s schedule. Getting your tax documents to your tax preparer early is key. Tax season is busy for tax preparers, putting you at the mercy of their schedule. To reduce the risk of feeling ‘put off,’ find a tax preparer that can work within your schedule.
You have to trust someone else with your private information. Sharing your personal financial information can feel a little scary, especially if you don’t do your research and find the right professional you can trust.
Final Thoughts
It may seem like a no-brainer to file your own tax return. As a matter of fact, I have used Turbo Tax to do my taxes at the beginning of my career. Some other option include KeeperTax and Free Tax USA. You do your own tax because you don’t want to spend money and would rather be in control. But there are many other factors most people don’t realize.
No matter how much money you make, whether one or both spouses work, or how much money you have saved, professional tax preparation may help you save money at tax time and throughout the year.
Your tax preparer can be your financial advisor – helping you learn the different ways to legally lower your tax liabilities and prepare for your future and build wealth. No matter how much you think you learned about personal finance in school, there’s always more to learn and a professional tax preparer can be the way to go.
Finally, a dollar saved in taxes is an additional dollar that you have available for use - possibly to growing your future!
