Should you prepare your own tax return or hire an expert? The answer depends on the complexity of your tax situation.
Is your tax status straightforward with no expectation that your writeoffs will exceed the standard deduction? If so, you could go the do-it-yourself route and either fill out the return yourself or use tax preparation software.
On the other hand, does this tax year include complications like capital gains and losses? Did you undergo a radical change in income tax liability, involving, say, a major inheritance? If that is the case, you’ll need to hire a professional.
Professional tax help could run anywhere from $150 and up. The cost might be worth it, because our tax code is enormously complex. Your tax expert will stand by you in the event that your return triggers an audit with the IRA. So, there’s the service after the sale for peace of mind.
However, for the average, middle-income tax payer, there are plenty of resources to go it on your own. There are websites that offer free or minimal-cost tax return preparation services. You just punch in the numbers and the software crunches them against the tax tables.
Many online services offer basic federal income tax preparation for free, but charge extra for preparing the state return, if required. A premium software product like H&R Block Deluxe Federal and State will set you back about $55—less if you pre-order the downloaded version. You’ll need to wait until after the New Year to download federal and state updates.
Most tax software is user friendly. You simply have your W-2s and other earnings record forms ready and answer the questions. The software will guide you through entering what your earned, the taxes you paid, and what deductions you believe you can take.
When you have completed all your entries, you will have the option of electronically filing your return or printing the tax forms out for paper mailing. If the program includes a state filing, the software will carry the data over to the state return automatically.
There are a few disadvantages in preparing your own returns. It can be time consuming. Rather than taking a shoebox full of receipts to an expert, the do-it-yourself tax preparer should plan on spending at least an hour—often more—to get the tax software completed.
Even if the software congratulates the preparer on a good job, there still is a lot of room for error. Entering a wrong figure or misplacing a decimal point could skew the return and cause the IRS to reject the form, with or without penalty, depending on the nature of the error.
So, the best advice is this: Get professional help if your taxes are complicated and your deductions will exceed the standard deduction already allowed. Do your taxes yourself if your tax return is straightforward and your tax status hasn’t changed radically from the previous years. If you intend to use a tax software product, check your work carefully before you file.