Should I Do My Own Taxes? How to Know When You Need a Pro
It’s time to start thinking about filing taxes, as that nagging reminder in the back of your mind sounds off at the beginning of each new year. This extra annual chore might make you wish you’d kept better track of your life from the last year as you scramble to decipher your documents.
As the tax deadline approaches, many people go back and forth about whether they should hire someone to prepare and file their taxes. After all, no one wants to lose money in this process or get into trouble with the IRS. What is the best option for you?
“It is okay to be nervous about this choice,” says Jacob Dayan, Esq. CEO and co-founder of Community Tax. “That means you are taking it seriously—trying to make sense of it all while being economical.”
If you are asking, “Should I do my own taxes?”, the best way forward is to gather some information. For that, you’ve come to the right place. We gathered advice from tax experts to help you decide how to handle your taxes this year and in years to come based on your situation.
Read on to hear what tax experts have to say.
Common misconceptions about filing taxes
Before you can evaluate whether or not you should do your own taxes, take a look at a few things many people misunderstand about the process.
Tax misconception #1: The computer is correct
“The IRS and state tax computers spit out tax bills that can be wildly wrong based on various third-party matching programs or lack of details on the original tax filings,” says Randy Tarpey, CPA of Sickler, Tarpey & Associates. This can apply to any computerized system you or others use when filing taxes—if a computer is working with incorrect information in the first place, the output it provides isn’t going to account for this. Tarpey says a little human effort and knowledge about correcting notices to the right balances makes a huge difference.
Tax misconception #2: Tax software can protect you from mistakes
For the above reason, you can’t completely depend on tax software to protect you from an audit. Thomas Williams, tax accountant and co-founder of Deducting the Right Way mentions a U.S. Tax Court warning that tax preparation software is only as good as the information you give it.
Though home tax prep software can definitely help and flag things that are glaringly incorrect, read the return before you submit it and ensure it includes an accurate and complete tax filing for your situation. “Most tax filing errors occur because of a lack of information on the tax filing or information that conflicts with other available information,” Tarpey says.
“If you believe that you can point to the tax software as your saving grace in an audit, think again,” Williams says. “CPA firms see a lot of clients who think they understand what to do and then get upset when an IRS notice comes in the mail,” says Niko Finnigan, CFA of Delta Wealth Advisors. This is why it’s important to keep tax records on file—an IRS notice might not come for a year or two.
Tax misconception #3: Asking for less will keep you out of tax trouble
People might think they are playing it safe by including fewer exemptions or asking for less on a tax return, but according to Tarpey, that isn’t the case. “An incomplete, inaccurate return will cause you tax trouble. For example, a student claiming themselves when parents claimed them leads to tax notices automatically,” Tarpey explains. “A student forgetting a stock sale with no gain leads to tax notices.”
Tax misconception #4: Filing your own taxes will always save you money
Preparing a tax file isn’t exactly everyone’s idea of a good time. If you are wondering about filing your own taxes, it’s probably because you are trying to save some money. You totally can—but it isn’t a guarantee that hiring a tax professional will cost more in the end. Sometimes it’s very much the opposite.
“The biggest benefit to working with a professional is potential tax savings,” says R.J. Weiss, founder of The Ways to Wealth. “While other considerations such as peace of mind and being able to ask questions are important, a good tax professional can help you keep more of your money today and in the future.”
It’s also important to note that mistakes can be expensive. “Think about what it could cost you in the long run, if you make errors on your tax return,” says Brian Ashcraft, director of customer experience at Liberty Tax. “It’s probably less expensive to pay for professionalism upfront than deal with the IRS later.”
The potential financial benefit from hiring a professional versus filing on your own will depend heavily on your specific situation. Read some of the following factors to get a better idea of where you are.
“Should I do my own taxes?” Yes, if …
… Your only income is in W-2 wages
“If you’re a W-2 wage earner who does not earn income from a business or side gig, then you are in a better position to self-prepare your tax return,” Williams says. If you have one job, particularly one you’ve had for a few years and can reference last year’s tax return to refresh your knowledge on how to file, taxes can be pretty simple.
“On the other hand, the situation becomes more difficult as you add layers like kids, home, stocks, rental property, business income, etc.” Williams points out. “Accountants know better than to believe a taxpayer who claims to have a ‘simple’ tax return. It’s a phrase you want to avoid unless you genuinely have nothing but W-2 wages to report.”
… It doesn’t stress you out
“Even though self-preparing your taxes saves you money, you need to decide what a potential mistake or omission will cost you in the long run,” Williams says. “If taxes makes you feel uncomfortable or stressed out, then you probably shouldn’t be preparing the tax return.”
But if you don’t feel stressed at the prospect of collecting and filing your tax documents—maybe doing the process yourself is a good choice. It might be an indication that your tax situation is pretty straightforward or that you have a good idea of what you need to do.
… You really want to learn about tax code
Some people are intrigued and curious about how taxes work and want to get a better grasp on their specific situation—if that sounds like you, maybe digging into the laws and regulations around taxes is your cup of tea.
“The tax code is huge,” Ashcraft says. “Understanding it can be challenging, especially with all the new changes related to tax reform.” It’s no simple undertaking, but if you have a natural instinct in this topic and a fairly uncomplicated tax situation—educating yourself can make filing your own taxes more worthwhile.
“If you want to learn how to file your own taxes, you should do your own taxes,” Tarpey says. “But don’t fail to gather proper documentation, read your return and coordinate with your parents’ tax filing if you are a dependent.”
If this applies to you, have you ever considered a career in accounting? Check out, “10 Must-Know Pros & Cons of an Accounting Career,” for more information.
“Should I do my own taxes?” No, if …
… You are filing in multiple states
If you’ve moved or if your income comes from companies in different places you might need to file taxes for more than one state. Since each state has its own requirements, filing in multiple states can be a real headache. You’ll need to know more information and obey the right rules for each state. With all that, there’s more room to make mistakes.
“A tax professional endorses the effort you put into documenting your year-end tax information and eases the learning curve of filing your taxes accurately and completely,” Tarpey says. “If you file in multiple states, a tax professional is necessary.”
… You are self-employed
Even a little side-hustle with a few projects can drastically complicate your taxes. Any wages you earn that aren’t on W-2 forms change the ballgame. If you are self-employed, a tax professional is pretty crucial, according to Tarpey. Working with an expert can also save you time and money by helping you navigate deductions, business expenses and what can or can’t be written off.
“When you file yourself without truly understanding the way those taxes are computed like a tax pro would, you are unable to locate areas where certain actions would save you money on your taxes next year,” says Scott Vance, enrolled agent of Tax Vanta. With the help of a professional, you can figure out how to run your business with the best outlook possible toward your bottom line.
… Your finances are very different this year
“An average person should certainly look into hiring a professional to help file their taxes whenever their finances have been altered dramatically,” Dayan says. He explains that a recent marriage, a substantial pay increase, inheritance or a new house can change your tax pattern enough to get confusing.
“Your financial situation will certainly change over time, and how you plan to file your taxes should mirror these financial adjustments,” Dayan explains. “If filing your taxes becomes too confusing with the changes, it is important to seek help to ensure your taxes are filed accordingly.”
On the other hand, Dayan points out that no big changes in your life can allow you to mirror the way you filed your taxes the year prior. “It will be simple enough for an average taxpayer to make small adjustments on their own.”
… You don’t want to spend a ton of time on it
Once again, this depends on the complexity of your situation—but filing taxes beyond W-2 reporting can get time consuming. Even though you’ll still need to gather your documents to work with a professional, the part of the equation where you sit down scanning each thing for what to do can take hours, if not your whole weekend.
“Hiring a professional will save you a bunch of time,” Dayan says. “Tax terms and rules are constantly changing, it could take you hours just to begin to collect your thoughts about starting to file.”
“I have seen many clients who have used the online tax prep software make mistakes that a practicing tax pro wouldn’t,” Vance says. “Then they have to go back and fix those mistakes with a tax professional anyway.”
Vance has noticed that many taxpayers spend so much time and frustration filing their own taxes that the preparer’s fee would probably have been a much better deal. “For instance, I grew up changing oil on my cars. Do I change my oil today? No.” Vance explains that a $60 oil change started to sound like a steal in comparison to doing it himself and spending an afternoon away from other priorities.
“A true tax pro will save you more in aggravation and potential money savings with tax strategies than what they charge,” Vance says.
Should you do your own taxes?
Hopefully these tips have given you a better idea on what you should do for your own tax preparation. But there are also lots of choices you can make about whom you hire, what software to use or how to get a little extra guidance. “Call and ask how much for a return,” Finnigan advises. “You can usually get a general idea over the phone if you tell them about your situation. Remember to get a range, and be clear that you are price shopping and not ready to commit.”
Another good middle-ground option is to use tax software that comes with the chance to chat with an expert, according to Weiss. These programs will probably have a price, but it will likely be less than hiring someone to take care of it. There are also resources online that will help taxpayers learn of any errors with their taxes before filing, Dayan says. No matter what tax preparation route you take, be sure you give all of your potential options some thought before forging ahead—your bank account could thank you!
If you are feeling lost in accounting jargon when you start looking into tax preparation, our article, “30 Basic Accounting Terms, Acronyms and Abbreviations Students Should Know,” could help provide you with a quick refresher.