Tax Time: Deciding How to File Your Taxes
It's never too early to think about how to file your taxes. Namely, should you prepare them yourself or hire a professional? Let's break down the pros and cons of each, as well as some of the questions you should ask before making your decision.
Online DIY Preparation
- Easy to Use: Tax software programs walk you through the process by asking you questions to determine your tax refund (or payment) based on the answers you input. Which program makes sense for you? The Balance has rated the 7 Best Tax Software Programs to Use in 2017.
- You Set the Pace: You can take your time and prepare your taxes at home. If you forget something, you can simply log back on. You don't have to drive back to your tax accountant's office.
- It's Inexpensive: Depending on which tax software you decide to go with, the price can range from free to $70.
- You're Not a Tax Professional: Tax programs rely on you knowing which receipts to gather and it's possible you might enter information incorrectly or miss out on qualified deductions and credits.
- No advice: Tax software can't advise you on how to maximize your tax return for the following year.
Questions to Ask:
- How comfortable am I with using tax software?
- If I decide to do them myself, will I get them done on time, or will I miss the deadline and risk a penalty?
Hiring a Tax Professional
About 60 percent of taxpayers use the services of tax professionals to prepare their returns, according to the IRS.
- Guidance: A tax professional will review all of your financial documents and ask for any relevant data, forms and receipts to help maximize your return.
- Representation: Licensed tax professionals can represent you before the IRS.
- They're Trained: Tax professionals know the ins and outs of the tax code. They can help you maximize your refund by noticing deductions you may have missed on tax software programs.
- Tax Deduction: For your tax return, you can still deduct the cost of hiring a tax professional to prepare your taxes.
- Cost: Hiring a professional costs at least three times more than the most expensive tax software program — $273 on average for a 1040 with Schedule A and State Return, according to the National Society of Accountants (NSA).
- Time: At a minimum, you'll meet with a tax professional twice — once to submit all of your tax documents and financial information, and a second time to review and sign the tax return when they are done.
- The Potential for Fraud: Most tax professionals provide honest service. However, each year return preparer fraud is on the IRS' "Dirty Dozen" List of Tax Scams. To avoid being scammed, follow the IRS' tips in Things to Remember When Choosing a Tax Preparer.
Questions to Ask:
The NSA offers a comprehensive list of questions to ask a prospective tax preparer.
It is important to note that any tax professional who files more than 11 tax returns in one year must e-file all tax client tax returns. So, whether you prepare your taxes online yourself or have a professional do them, your tax return will most likely be e-filed. And that's a good thing! According to the IRS, when you e-file, you can expect to receive a refund within three weeks — or faster if you elect direct deposit into your checking or savings account — versus six to eight weeks to process a paper form of your tax return.
Regardless of who prepares your tax return, you are legally responsible for the information on your return. So make sure it's done right the first time.