Is It Better to Do Your Own Taxes or Hire a Professional?

Individuals across the United States annually fulfill their tax obligations. This involves determining income, deductions, and credits to calculate what is owed or refunded. A key decision for many taxpayers is whether to prepare their own tax return or seek assistance from a qualified professional. There is no universally superior choice, as the optimal path depends on a person’s financial situation and comfort with tax regulations.

When Self-Preparation is Suitable

Self-preparation suits individuals with straightforward financial circumstances. This includes those with primary income from wages (Form W-2) and who claim the standard deduction. Minimal investment income (Form 1099-INT) also aligns well.

Comfort with technology and numerical tasks helps self-preparation. Modern tax software guides users through the process with prompts and error checks. Successful self-preparation requires time to gather documents, input data, and review the return.

Some individuals prefer to handle their own taxes to understand their personal finances and the tax system. This approach fosters financial literacy and tax control. Self-preparation, particularly through free or low-cost software, is a more economical choice compared to hiring a professional. The IRS Free File program, for example, allows many taxpayers with an adjusted gross income (AGI) of $84,000 or less for tax year 2024 to file their federal taxes for free using guided software.

Steps in Self-Preparation

Begin by gathering all financial documents. This includes income statements like Forms W-2, and various Forms 1099 for interest (1099-INT), dividends (1099-DIV), or non-employee compensation (1099-NEC). Organize documentation supporting potential deductions or credits, such as student loan interest statements (Form 1098-E) or charitable contribution records.

Next, select tax preparation software, available as online platforms and desktop applications. Software providers offer different tiers, from free versions for simple returns to paid options for complex situations. Selection factors include user-friendliness, ability to handle specific tax forms, and cost.

Once chosen, input financial information following the program’s prompts. These programs include built-in error checks and may offer audit risk assessments. After data is entered and reviewed, the return can be e-filed, which is generally the fastest and most secure method.

Maintain thorough records of the filed return and supporting documentation. Keep records for at least three years from filing or its due date; six years for certain situations, such as underreporting income by 25% or more.

When Professional Assistance is Recommended

Professional tax assistance is recommended when a taxpayer’s financial situation extends beyond basic wage income and standard deductions. This includes individuals with self-employment income (Schedule C) or rental properties (Schedule E). Taxpayers with complex investment portfolios (capital gains/losses, stock options, or cryptocurrency transactions) benefit from expert guidance.

Major life events impact tax obligations, making professional guidance valuable. Events include marriage, divorce, birth or adoption of a child, purchasing or selling a home, or starting a new business. These transitions introduce new tax implications and opportunities a professional can navigate.

If a taxpayer receives an IRS audit notice or needs to amend previous tax returns, a professional can provide expertise and representation. Professionals possess knowledge of current tax laws and identify deductions and credits self-preparers might overlook, leading to greater tax savings. For those who lack the time, patience, or confidence to navigate the tax code, a professional alleviates stress and ensures accuracy and compliance. Expert oversight prevents costly errors and penalties.

Engaging a Tax Professional

When seeking professional tax assistance, understanding the types of available professionals is a good starting point.

Types of Tax Professionals

Certified Public Accountants (CPAs) are licensed by state boards and offer a broad range of accounting services.
Enrolled Agents (EAs) are federally licensed tax practitioners specializing in taxation and authorized to represent taxpayers before the IRS.
Tax attorneys provide legal advice on tax matters and can represent clients in court.
Professional tax preparers, who may not hold specific credentials but possess an IRS Preparer Tax Identification Number (PTIN), also provide services.

Find a reputable professional through referrals from trusted sources, professional organizations, or the IRS’s online Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. During an initial consultation, inquire about their fees (which vary by complexity) and their experience with similar tax situations. Ask about their professional credentials, their process for preparing returns, and whether they offer audit support.

Before an appointment, gather all relevant income statements, deduction receipts, and a copy of the prior year’s tax return. Once prepared, review the return with the professional, asking questions about any unfamiliar entries, before signing. Maintaining open communication with a tax professional throughout the year is beneficial for tax planning.