It’s tax time and you should be receiving your tax related documents for the last year. As a tax attorney who also teaches tax at a local college, people often ask me whether they should do their own income tax returns or not. While I often encourage people to consider doing them (and the goal of my federal income tax class is to make students feel comfortable preparing their own 1040s) there are a few considerations to make before you rush out to purchase this year’s new software or drop some of your hard earned cash on a preparer.
1) How complicated are your taxes and do you feel comfortable using software?
If you are considering preparing your own tax return, determine what type of a taxpayer you are. On one end of the spectrum, if you happen to be a recent college grad who has little assets and work as a W-2 wage earner I say go for it. Preparation software makes it surprisingly easy to put together your own tax return these days and a simple taxpayer like this is one of the least likely to be subject to audit.
If you are a business owner with various investments, work out of your home and seek to maximize your itemized deductions however, I’d probably suggest you get some help. Of course every situation is different and if you seldom use a computer you might need a little help regardless, and if your business just happens to be tax preparation, well then you probably don’t need my suggestions now do you?
2) Can you make the time commitment?
A consideration that is often overlooked is the amount of time required to prepare a tax return. Income tax returns can easily take dozens of hours to prepare and the time will continue to rise the more complex your tax situation and the less familiar you are with tax preparation. If you have the time and would like to save a couple bucks it may make sense to venture into the tax preparation world yourself and get a more thorough understanding of your overall tax picture. If you don’t think you are going to be able to find the time to complete the return accurately however, you should find a CPA to assist you because you could miss certain deductions or set yourself up for a tax problem.
3) Are you willing to pay the cost of professional preparation?
Despite some fees that are advertised to be lower, most taxpayers can expect to spend a minimum of $200 to have their return prepared. It isn’t unusual for the amount to jump up to $1,000 - $2,000 as complexities are added so be sure you understand the costs you are likely to incur. In addition, not all tax preparers are created equal. On a budget and for simple returns, a seasonal tax services like H&R Block, Liberty Tax Service or Jackson Hewitt can be a good option.
Overall however, I don’t think temporary preparation centers are a good value because an experienced CPA, for only a moderately higher fee, will often be happy to develop a relationship with you, may be able to make suggestions to reduce your tax bill, and will be able to help you work with the IRS to resolve any problem. Plus, in the event you have a tax question outside of the few months that the temporary stores are open, you can always call your local CPA.
Of course, if you don’t have much extra time, are inexperienced preparing tax returns, and find that you have a reasonably complicated situation, I would suggest you can’t afford not to have a paid preparer of some type.
4) Are you still unsure whether you should prepare your own taxes?
Ah yes, this is often where taxpayers find themselves even after taking an inventory of where they think they stand on the complexity scale in the tax world and how comfortable they feel taking the tax code into their own hands. On the plus side, you are certainly not alone. If you want to take the plunge and try it yourself but just can’t be confident in your abilities to do a good job, try both!
That’s right, while it may sound a little odd, nothing could set you up for better success than paying to have your taxes prepared by a professional but also trying out the software on your own. You will be able to get a feel for both how well you were able to navigate the preparation software as well as see how you compare to your professionally preparer. Then you will be able to make a more informed decision next year.
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