Financial Education Resources

Tax filing requires attention to detail. Any mistakes or omissions could end up costing you fines, penalties, and/or more in taxes.

Review these three options for preparing your taxes: tax software, a tax preparer, or an accountant.

Trying to decide whether to prepare your taxes on your own or get professional help? There’s a lot to consider beside your number-crunching ability. To understand when it may be best to take a DIY approach or get help, review these tips:

Taking the DIY Approach

If you have only a modest amount of W-4 income to report and just claim a standard deduction, filing your taxes on your own could work well for you. If your taxes are not complicated, you may be able to file online for free through the IRS or a tax software provider.

Tax software is designed to be user-friendly. Most software will walk you through a Q and A format designed to automatically organize all the information that needs to be reported according to the most current state and federal tax regulations. Once you enter all the required information, the software calculates how much tax you owe or how much of a refund you are entitled to. Most tax software provides additional support like live chat to help with any questions, or contact with a preparer if it becomes necessary. Once you complete the process, the software will allow you to file your taxes electronically.

Compared to getting in-person professional help with your taxes, tax software is usually less expensive. You can expect to see a range of prices, but you should be able to file your taxes using a software solution for under $100. If your taxes are more complicated, with multiple types and sources of income and itemized deductions, you may want to opt for a more robust tax software service, which could cost a bit more.

Tax software can also save you time because you can do it whenever you’re ready rather than waiting for a tax preparer to fit you into their schedule. Once you sit down to do your taxes, it shouldn’t take more than an hour or so.

When to Seek Human Help

There are other times in life when it makes sense to get professional help to file your taxes. Handling multiple sources of income, navigating new tax laws, dealing with a life-changing event, tracking different kinds of deductions, and other factors can be confusing and lead to costly mistakes. A professional tax preparer could also find ways to save you money by uncovering deductions and preventing penalties. If your financial situation includes any of these complicating factors, you may want live, in-person help with your taxes:

• Self-employment
• Business ownership
• Rental property ownership
• Active Investments
• Foreign financial accounts

In addition, if you lack the time to devote to preparing your taxes, find it stressful, or know that you don’t have the attention to detail that preparing taxes requires, it is best to get some help. Consider using a tax preparer or a certified public accountant (CPA).

Help From a Tax Preparer

There are many different types of tax preparers. Some are non-credentialed volunteers while others are seasonal workers who prepare taxes at pop-up tax sites and who have gone through some continuing education programs. Other tax preparers have passed IRS-sponsored exams and have earned special credentials that allow them to prepare personal and business taxes.

It’s important to understand that to legally accept money for filing other people’s taxes, a tax preparer has only to register with the IRS. If you decide to hire a tax preparer to do your taxes, you’ll need to shop around for someone who is appropriately skilled. Ask plenty of questions, including:

• What is your IRS preparer tax identification number (PTIN)?
• How long have you been preparing taxes?
• What training do you have for preparing taxes?
• Do you have any certifications?
• Do you provide audit assistance?
• What will it cost for you to prepare and file my taxes?

Due to their range of skills, tax preparers’ costs can vary greatly. Hiring a tax preparer of any skill or background will cost more than using tax software to do your taxes.

The main advantage of using a tax preparer over tax software is the human element. You have someone to communicate with instead of figuring things out on your own. An experienced tax preparer will be better able to handle your unique tax situation, and they can answer your questions and give you advice for reducing your tax burden next year.

Help From a CPA

Hiring a certified public accountant is another way to get human help with your taxes, especially if your financial situation is particularly complicated. A CPA is an accountant who has earned the CPA designation by meeting requirements in education and experience and passing an exam.

If you already engage a CPA for other accounting services, you may want your CPA to prepare your taxes. Their insight into your bigger financial picture may give them a big advantage over a tax preparer. However, a CPA, with their additional accounting expertise beyond taxes, will cost more than software or a tax preparer.

Filing your taxes, especially for the first time, is a great responsibility made easier with software or by a tax preparer or CPA. Whether you should tackle your taxes on your own will depend on the complexity of your finances and your aptitude with accounting principles. If you don’t know where to start, try asking your financial institution for a referral to a tax professional they trust.

Who Has to File?

Everyone who reaches a certain income level must file taxes. The IRS publishes a table of income thresholds every year as a guide.